nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2006‒09‒16
eight papers chosen by
Bernardo Batiz-Lazo
Bristol Business School

  1. Exclusive vs Overlapping Viewers in Media Markets By Ambrus, Attila; Reisinger, Markus
  2. The Logic of Appropriability: From Schumpeter to Arrow to Teece By Sidney Winter
  3. Systemic Innovation in a Distributed Network: Paradox or Pinnacle? By Poul Houman Andersen; Ina Drejer
  4. Nepotism or Family Tradition?: A Study of NASCAR Drivers By Peter A. Groothuis; Jana D. Groothuis
  5. The impact of organizational structure and lending technology on banking competition By Degryse,Hans; Laeven,Luc; Ongena,Steven
  6. Transfer Pricing by U.S.-Based Multinational Firms By Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
  7. Outsourcing, Offshoring, and Productivity Measurement in Manufacturing By Susan Houseman
  8. Mergers and CEO power By Felipe Balmaceda

  1. By: Ambrus, Attila; Reisinger, Markus
    Abstract: This paper investigates competition for advertisers in media markets when viewers can subscribe to multiple channels. A central feature of the model is that channels are monopolists in selling advertising opportunities toward their exclusive viewers, but they can only obtain a competitive price for advertising opportunities to multi-homing viewers. Strategic incentives of firms in this setting are different than those in former models of media markets. If viewers can only watch one channel, then firms compete for marginal consumers by reducing the amount of advertising on their channels. In our model, channels have an incentive to increase levels of advertising, in order to reduce the overlap in viewership. We take an account of the differences between the predictions of the two types of models and find that our model is more consistent with recent developments in broadcasting markets. We also show that if channels can charge subscription fees on viewers, then symmetric firms can end up in an asymmetric equilibrium in which one collects all or most of its revenues from advertisers, while the other channel collects most of its revenues via viewer fees.
    Keywords: Media; Multihoming; Platform Competition; Two-Sided Markets
    JEL: D43 L13
    Date: 2006–09
  2. By: Sidney Winter
    Abstract: This note expounds the abstract fundamentals of the appropriability problem, re-assessing insights from three classic contributions – those of Schumpeter, Arrow and Teece. Whereas the first two contributions were explicitly concerned with the implications of appropriability for society at large, Teece’s main concern was with practical questions of business strategy and economic organization. This note argues that, his practical concerns notwithstanding, Teece contributed, en passant but fundamentally, to the clarification of basic questions that previous authors had addressed less comprehensively and less satisfactorily. Specifically, his analysis of the innovator’s access to complementary assets, undertaken from a contracting perspective, can be seen as filling a significant gap in the previous theoretical discussion of appropriability.
    Keywords: Appropriability, Innovation, Complementary assets, Patents, Intellectual property.
    Date: 2006–09–11
  3. By: Poul Houman Andersen; Ina Drejer
    Abstract: Previous research has suggested that there is a dichotomy of organisational practices: companies involved in autonomous or modularised innovations, it is argued, benefit from decentralised approaches where coordination primarily takes place through the marketplace, whereas the benefits of systemic innovation are said to be appropriated best by centralised organisations. However, case studies of subcontractors to the Danish wind turbine industry suggest that the ability to meet heterogeneous demands plays an important role for the success of different forms of organisational practices in relation to innovation. The modularised versus systemic architecture approach therefore appears to be a too sweeping dichotomy for describing what can better be perceived as an array of different practices for balancing innovation contribution with the ability of individual firms to appropriate innovation benefits – and a heterogeneous market perception is a core element in building and sustaining this ability.
    Keywords: Organisational Forms; Innovation System; Knowledge Complementarities; Value Appropriation
    JEL: L14 O31 O34
    Date: 2006
  4. By: Peter A. Groothuis; Jana D. Groothuis
    Abstract: Of the drivers who raced NASCAR cup series in 2005, 23 of 76 had family connections of either being a son, brother or father of current or former drivers. Given the family connections, some have suggested that the N in NASCAR stands for nepotism. The family tradition of career following, however, is not unique to NASCAR. We see this pattern in many careers such as business, law, politics, agriculture, medicine and entertainment. There are many reasons why children enter the same career as their parents. These include physical-capital transfer, human-capital transfer, brand-nameloyalty transfer, and nepotism. Using a panel data of career statistics for drivers from the last 30 years, we test to see which model best explains career following in NASCAR racing. Our results suggest that the N in NASCAR does not stand for nepotism. Sons, do not have longer careers than non family connected drivers, given the same level of performance. We do find, however, that fathers end their careers earlier than performance indicates when a son enters into cup competition. This could be due to a son’s ability to extend a brand name across generations. The extension of a brand name also occurs with second brothers who benefit from the first brother’s name and having longer careers than performance indicates. If nepotism exits, it occurs only with the second brothers.
    Date: 2006
  5. By: Degryse,Hans; Laeven,Luc; Ongena,Steven (Tilburg University, Center for Economic Research)
    Abstract: Recent theoretical models argue that a bank's organizational structure reflects its lending technology. A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information. We investigate theoretically and empirically how bank organization shapes banking competition. Our theoretical model illustrates how a bank's geographical reach and loan pricing strategy is determined not only by its own organizational structure but also by organizational choices made by its rivals. We take our model to the data by estimating the impact of the rival banks' organization on the geographical reach and loan pricing of a singular, large bank in Belgium. We employ detailed contract information from more than 15,000 bank loans granted to small firms, comprising the entire loan portfolio of this large bank, and information on the organizational structure of all rival banks located in the vicinity of the borrower. We find that the organizational structure of the close rival banks matters for both branch reach and loan pricing. The geographical footprint of the lending bank is smaller when the close rival banks are large, hierarchically organized, and technologically advanced. Such rival banks may rely more on hard information. Large rival banks in the vicinity also lower the degree of spatial pricing. We also find that the effects on spatial pricing are more pronounced for firms that generate less hard information, such as small firms. In short, size and hierarchy of rival banks in the vicinity influences both branch reach and loan pricing of the lender.
    Keywords: banking sector;bank size;competition;mode of organization
    JEL: G21 L11 L14
    Date: 2006
  6. By: Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
    Abstract: This paper examines how prices set by multinational firms vary across arm's-length and related-party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm's-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm's-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.
    JEL: F14 F23 H25 H26 H32
    Date: 2006–08
  7. By: Susan Houseman (W.E. Upjohn Institute for Employment Research)
    Abstract: Because of gaps in existing surveys and methodological problems with the computation of productivity measures, outsourcing and offshoring result in an overstatement of labor productivity and multifactor productivity growth in manufacturing. Although it is impossible to fully characterize the size of the bias, I present several pieces of evidence indicating that it is large. Any overstatement of productivity in manufacturing, which has been a driver of productivity in the American economy, may have important implications for aggregate productivity measurement, particularly to the extent that the bias arises from offshoring activities. These findings may help explain why recent high growth in labor productivity has not been associated with widespread wage gains but rather with an increase in capital's share of GDP: labor productivity growth in manufacturing, and most likely in the aggregate economy, are overstated, and the very factors that have led to the overstatement - outsourcing and offshoring - depress wages. The effects of outsourcing and offshoring on manufacturing and aggregate productivity measurement, I argue, warrant further study, and productivity measures should be interpreted with caution.
    Keywords: offshoring, productivity, manufacturing, outsourcing, measurement, houseman
    JEL: D24 D33 O47 J24
    Date: 2006–09
  8. By: Felipe Balmaceda
    Abstract: In this paper a simple model of mergers in which synergies, private benefits and CEO power play a crucial role is proposed. A merger is modeled as a bargaining process between the acquiring and target board with the gains from a merger divided according to Rubinstein’s alternating-offer game with inside options. Boards consider both firm value and CEOs’ payoff. when deciding whether or not to merge. The more powerful CEOs are, the more board members consider the consequences of a merger on CEOs’ payoffs. The model determines the optimal firm scope and yields predictions that are consistent with several empirical regularities about mergers such as: (i) inefficient mergers take place when acquiring CEOs are powerful and units are not related; (ii) target shareholders are better-o. after a merger, acquiring shareholders are sometimes worse-off., and combined value is positive; and (iii) in the presence of credit constraints, acquiring firms are more likely to merge with low-productivity firms and with firms in which CEOs are less powerful.
    Date: 2006

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