nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2006‒11‒04
ten papers chosen by
Bernardo Batiz-Lazo
University of Leicester

  1. Where Do Firms Incorporate? By Becht, Marco; Mayer, Colin; Wagner, Hannes
  2. The Dye Famine and its Aftermath: Knowledge Diffusion and Entry By Genesove, David
  3. Outsourcing Induced by Strategic Competition By Yutian Chen; Pradeep Dubey; Debapriya Sen
  4. Farsightedly Stable Networks By Herings P. Jean-Jacques; Mauleon Ana; Vannetelbosch Vincent
  5. Regulation – the Corridor to Liberalization: The Experience of the Israeli Phone Market 1984-2005 By Reuben Gronau
  6. Exploring the Detailed Location Patters of UK Manufacturing Industries using Microgeographic Data By Duranton, Gilles; Overman, Henry G.
  7. Option chain and change management : a structural equation application. By Thierry Burger-Helmchen
  8. Productivity in Estonian enterprises: the role of innovation and competition By Priit Vahter
  9. Does Services Liberalization Benefit Manufacturing Firms? By Arnold, Jens; Mattoo, Aaditya; Smarzynska Javorcik, Beata
  10. Corporate governance in institutions offering Islamic financial services : issues and options By Grais, Wafik; Pellegrini, Matteo

  1. By: Becht, Marco; Mayer, Colin; Wagner, Hannes
    Abstract: Over the last few years, a series of rulings by the European Court of Justice (ECJ) has opened up the European Union to cross-border mobility in incorporation. In this paper we explore how deregulation and the costs of regulation have affected the location decisions of firms. Using a newly constructed dataset of companies from around the world incorporating in the U.K. between 1997 and 2005 we find a large increase in new incorporations of limited liability firms from E.U. Member States following the ECJ rulings. We find that incorporation costs, in particular minimum capital requirements, and delays in incorporation are significant influences on firms’ location decisions. Our results confirm the relevance of price to firms’ choice of legal systems. We also report that cross-border incorporation has prompted regulatory competition between E.U. Member States to provide low-cost corporate law to limited liability companies.
    Keywords: entrepreneurship; financial regulation; incorporation; regulatory competition
    JEL: G38 K22
    Date: 2006–10
  2. By: Genesove, David
    Abstract: A firm that introduces a new good enjoys monopoly profits for some initial period of time. What happens subsequently depends upon the relative strength of knowledge diffusion and increasing dominance. The first effect enhances challengers’ ability to develop the product, erodes the incumbent’s monopoly power, while the second, which concerns the relative net cost of the incumbent to challengers in production, strengthens it. This paper exploits the near total disruption of imports of German dyes to the United States during World War I and the immediate post-War period, and the subsequent re-entry of the Germans to the market, to separately estimate the first effect. The results show that while (a) the probability of a dye was imported in 1913-1914 bore no relation to its year of discovery, (b) the probability it was produced in 1917 by the new American manufacturers was greater by one and a half percent per year, the earlier the year of discovery. Coupled with the estimated semi-elasticity of the probability of production with respect to the volume of imports in 1914, and assuming prospective profits were proportional to that volume, one obtains that every additional year since discovery decreased the expected cost of developing the dye by 19 to 25%. The paper shows, additionally, that after German imports were able to resume, the probability of a dye being imported in 1923, given that the Americans were already producing it, was independent of the year of discovery – implying that the discovery year is an appropriate proxy for the amount of development relevant knowledge that had diffused through the industry.
    Keywords: dyes; increasing dominance; innovation; knowledge diffusion
    JEL: L65 O31 O33
    Date: 2006–10
  3. By: Yutian Chen (Dept. of Economics, SUNY-Stony Brook); Pradeep Dubey (Dept. of Economics, SUNY-Stony Brook); Debapriya Sen (Dept. of Economics, SUNY-Stony Brook)
    Abstract: We show that intermediate goods can be sourced to firms on the "outside" (that do not compete in the final product market), even when there are no economies of scale or cost advantages for these firms. What drives the phenomenon is that "inside" firms, by accepting such orders, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final product. Thus they have incentive to quote high provider prices to ward off future competitors, driving the latter to source outside.
    Keywords: Intermediate goods, Outsourcing, Cournot duopoly, Stackelberg duopoly
    JEL: D41 L11 L13
    Date: 2006–11
  4. By: Herings P. Jean-Jacques; Mauleon Ana; Vannetelbosch Vincent (METEOR)
    Abstract: We propose a new concept, the pairwise farsightedly stable set, in order to predict which networks may be formed among farsighted players. A set of networks G is pairwise farsightedly stable (i) if all possible pairwise deviations from any network g ∈ G to a network outside G are deterred by the threat of ending worse off or equally well off, (ii) if there exists a farsightedly improving path from any network outside the set leading to some network in the set, and (iii) if there is no proper subset of G satisfying (i) and (ii). We show that a non-empty pairwise farsightedly stable set always exists and we provide a full characterization of unique pairwise farsightedly stable sets of networks. Contrary to other pairwise concepts, pairwise farsighted stability yields a Pareto dominating network, if it exists, as the unique outcome. Finally, we study the relationship between pairwise farsighted stability and other concepts such as the largest consistent set.
    Keywords: Economics ;
    Date: 2006
  5. By: Reuben Gronau
    Abstract: An important part of the literature on regulatory economics is based on the US experience, where a well-established regulator faces a privately owned monopoly. It is sometimes forgotten that this model does not apply in many places where a newly established regulator faces a government owned, or a newly privatized, company. It definitely does not apply to the case of the Israeli communication industry where the government serves as regulator and at the same time is the owner of the wireline monopolist. The paper follows the regulatory experience of the Israeli communication industry over the last 20 years, analyzing its impact on consumers' welfare, the monopoly's profitability and its productivity. Though the Israeli institutions may look to a Western observer today as unique they were quite common in most of the developed economies prior to the wave of privatizations and deregulation in the 90s. The lessons learned from the Israeli experience have, however, more than a historic interest, and may be relevant for the regulatory process in general.
    JEL: K2 L43 L5 L51 L96
    Date: 2006–10
  6. By: Duranton, Gilles; Overman, Henry G.
    Abstract: We use a point-pattern methodology to explore the detailed location patterns of UK manufacturing industries. In particular, we consider the location of entrants and exiters vs. continuing establishments, domestic- vs. foreign-owned, large vs. small, and affiliated vs. independent. We also examine co-localisation between vertically-linked industries. Our analysis provides a set of new stylised facts and confirmation for others.
    Keywords: clusters; k-density; localisation; location patterns; spatial statistics
    JEL: C19 L70 R12
    Date: 2006–10
  7. By: Thierry Burger-Helmchen
    Abstract: The aim of this work is to establish empirically with a structural equation model (SEM) the existence of links between the options perceived by the members of an industry, the expectation of future rents produced by the exercise of these options and firm or industry specific factors. The theoretical part of this work is based on the notion of option chain developed by Bowman and Hurry (1993). The empirical part is on the video-game industry. A questionnaire based dataset on 211 video-game creators allows us to represent the concepts of potential and real option from a strategic point of view. The study shows that the relations between perceived opportunities, capacities building and rent expectations are shared by the members of this industry and can be expressed as options.
    Keywords: Real options, Innovation and change management, structural equation analysis, video-game industry.
    Date: 2006
  8. By: Priit Vahter
    Abstract: This paper provides some stylised facts about differences in labour productivity and total factor productivity (TFP) in Estonian firms and about the role of selected determinants of productivity differences. Enterprise level panel data of the whole population of Estonian firms from years 1995-2002 is used. It appears that the variation of productivity indicators in Estonia is much greater than in Western Europe. Although there is a lot of entry and exit of firms, there is not much movement within the productivity distribution of surviving .rms. It is found that both innovation and less concentrated market structure seem to be positively related to higher productivity of firms
    Keywords: productivity, competition, innovation, market structure
    JEL: G3 L2 O31 O4
  9. By: Arnold, Jens; Mattoo, Aaditya; Smarzynska Javorcik, Beata
    Abstract: While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. This study examines the link between services sector reforms and the productivity of manufacturing industries relying on services inputs. The results, based on firm-level data from the Czech Republic for the period 1998-2003, show a positive relationship between services sector reform and the performance of domestic firms in downstream manufacturing sectors. When several aspects of services liberalization are considered, namely, the presence of foreign providers, privatization and the level of competition, we find that allowing foreign entry into services industries is the key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. As most barriers to foreign investment today are not in goods but in services sectors, our findings may strengthen the argument for reform in this area.
    Keywords: foreign direct investment; productivity; services liberalization
    JEL: D24 F2 L8
    Date: 2006–10
  10. By: Grais, Wafik; Pellegrini, Matteo
    Abstract: This paper reviews institutions offering Islamic financial services (IIFS) corporate governance challenges and suggests options to address them. It first points out the importance of corporate governance for IIFS, where it would require a distinct treatment from conventional corporate governance and highlights three cases of distress of IIFS. It then dwells on prevailing corporate governance arrangements addressing IIFS ' needs to ensure the consistency of their operations with Islamic finance principles and the protection of the financial interests of a stakeholders ' category, namely depositors holding unrestricted investment accounts. It raises the issues of independence, confidentiality, competence, consistency, and disclosure that may bear on pronouncements of consistency with Islamic finance principles. It also discusses the agency problem of depositors holding unrestricted investment accounts. The paper argues for a governance framework that combines internal and external arrangements and relies significantly on transparency and disclosure of market relevant information.
    Keywords: Banks & Banking Reform,Corporate Law,Non Bank Financial Institutions,Investment and Investment Climate,Privatization
    Date: 2006–11–01

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