nep-bec New Economics Papers
on Business Economics
Issue of 2020‒07‒13
eight papers chosen by
Vasileios Bougioukos
Bangor University

  1. Network Topology and Market Structure By Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
  2. Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries By Guo, Di; Jiang, Kun; Xu, Chenggang; Yang, Xiyi
  3. Listing Advantages Around the World By Kenichi Ueda; Somnath Sharma
  4. The Forecasting Power of the ifo Business Survey By Robert Lehmann
  5. Patent Portfolios and Firms Technological Choices By Stefano Comino; Fabio M. Manenti
  6. Markups and markdowns By Mauro Caselli; Stefano Schiavo; Lionel Nesta
  7. Made and Created in China: Super Processors and Two-way Heterogeneity By Chen, Zhiyuan; Erbahar, Aksel; Zi, Yuan
  8. Set-up Costs and the Financing of Young Firms By Derrien, Francois; Mésonnier, Jean-Stéphane; Vuillemey, Guillaume

  1. By: Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
    Abstract: We develop a two-stage oligopolistic network competition model where, first, firms simultaneously determine their prices and, then, users connected through a network determine their product's consumption. We show that denser networks (network topology) reduce prices and that a higher number of firms (market structure) reduces prices only when competition is weak. However, the price for the most influential users can increase with the number of firms when competition is very fierce and when there are enough network externalities. We also show that increasing competition always leads to a lower firm's profit while increasing network density leads to a clockwise rotation of the profit curve as a function of the number of firms. Finally, we study the effect of network topology and market structure on price dispersion and determine the optimal network structure from the perspective of both firms and users.
    Keywords: competitive pricing; Entry; market structure; optimal network structure
    JEL: D43 D85 L13 L14
    Date: 2020–03
  2. By: Guo, Di; Jiang, Kun; Xu, Chenggang; Yang, Xiyi
    Abstract: We examine the effects of China's industrial clustering on resource reallocation efficiency across firms. Based on our county-industry level DBI index panel, we find that industrial clustering significantly increases local industries' productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters facilitate higher entry rates and exit rates; and (ii) within clusters' environment the dispersion of individual firm's markup is significantly reduced, indicating intensified local competition within clusters. The identification issues are carefully addressed by instrumental variable (IV) regressions.
    Keywords: Competition; Industrial Cluster; Productivity Growth; Resource reallocation
    JEL: D2 H7 L1 O1 R1 R3
    Date: 2020–03
  3. By: Kenichi Ueda (University of Tokyo, TCER, and CEPR); Somnath Sharma (University of Tokyo and Reserve Bank of India)
    Abstract: Using the firm-level data of 33 countries over 10 years (2008{2017), we find that the listed firms have lower returns on assets than the similar unlisted firms, in most countries. The result is associated with a higher capital-labor ratio of listed firms, implying that the listed firms face less financial constraints. Moreover, we investigate the institutional factors that exacerbate or mitigate the listing advantages (i.e., ROA difference) across the countries. Compared to English origin, German and Scandinavian law countries strongly narrow the listing advantages but the French law origin shows mixed results. Overall, the listing advantages seem narrowed with stronger creditor's rights but show unclear associations with the strength of corporate governance.
    Date: 2020–05
  4. By: Robert Lehmann
    Abstract: The ifo Institute is Germany’s largest business survey provider, with the ifo Business Climate Germany as one of the most important leading indicators for gross domestic product. However, the ifo Business Survey is not solely limited to the Business Climate and also delivers a multitude of further indicators to forecast several important economic variables. This paper gives a literature overview over existing studies that deal with the forecasting power of various ifo indicators both for gross domestic product and further economic variables such as exports. Overall, the various indicators from the ifo Business Survey can be seen as leading indicators for a multitude of variables representing the German economy, making them a powerful tool both for an in-depth business cycle diagnosis and for applied forecasting work.
    Keywords: economic forecasting, business surveys, leading indicators
    JEL: E17 E27 E37 F17 J11
    Date: 2020
  5. By: Stefano Comino (Department of Economics and Statistics - University of Udine); Fabio M. Manenti (Department of Economics and Management - University of Padova)
    Abstract: In many industrial sectors, firms amass large patents portfolios to reinforce their bargaining position vis a vis competitors. In a context where patents have a pure strategic nature, we discuss how the presence and the effectiveness of a patent system affect firms technological decisions. Specifically, we present a two-stage game where firms first choose whether to agglomerate (i.e. develop technologies for the same technological territory) or to separate (i.e. develop technologies for different territories) and then they take their patenting decisions. We show that strong patents may distort technological choices yielding to firms to follow inefficient technological trajectories in an attempt to reduce competitors’ patenting activity. While an increase in the strength of patent rights − i.e. the extent to which patents can be used to extract value − undoubtedly distorts firms choices, the impact of a larger scope − the degree to which patent protection carries out in the adjacent ares as well − is ambiguous. We also discuss how such distortions change when one firm is prevented from obtaining its optimal number of patents and when firms patenting activities generate additional market value.
    Keywords: patent portfolios, patent strength and scope, technological territory, strategic patenting
    JEL: D43 L13
    Date: 2020–06
  6. By: Mauro Caselli (Università di Trento); Stefano Schiavo (Observatoire français des conjonctures économiques); Lionel Nesta (Observatoire français des conjonctures économiques)
    Abstract: This paper studies the high yet undocumented incidence of firms displaying markups lower than unity, i.e., prices lower than marginal costs, for protracted periods of time. Using a large sample of French manufacturing firms for the period 1990–2007, the paper estimates markups at the firm level and documents in a robust way the extent to which firms exhibit negative price-cost margins. The paper also investigates the relationship between the incidence and persistence of negative price-cost margins and candidate explanations, such as subsidies, strategic behaviour, uncertainty and irreversibility.
    Keywords: Markups; Irreversibility; Uncertainty; Negative price-cost margins; French manufacturing data
    JEL: D24 D81 E22 L11
    Date: 2018–12
  7. By: Chen, Zhiyuan; Erbahar, Aksel; Zi, Yuan
    Abstract: This paper uses China's processing trade regime to examine firm performance and specialization within a production network. We show that there exists a special breed of firms that are active in both ordinary and processing exports, and are superior to other firms in multiple dimensions. Motivated by these "super processors," we document novel stylized facts on the interplay among exporters' performance, export mode, and brand ownership. We find that productivity and branding ability jointly shape firms' exporting activities. Based on these facts, we provide a general equilibrium model with endogenous production networks where firms are heterogeneous in both manufacturing and branding abilities. Testing our model's central prediction, we find that facilitating processing exports induces productive domestic downstream firms to establish their own trademarks. Our results highlight that processing trade not only leads goods to be "Made in China," but also "Created in China."
    Keywords: Heterogeneous Firms; processing trade; production networks
    JEL: F1 F12 F13 F14 L11 L21
    Date: 2020–03
  8. By: Derrien, Francois; Mésonnier, Jean-Stéphane; Vuillemey, Guillaume
    Abstract: We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, young firms in high set-up cost industries grow significantly less.
    Keywords: Capital Structure; debt maturity; Financial Frictions; leverage; set-up costs; Young firms
    Date: 2020–03

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