nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2006‒11‒18
24 papers chosen by
Bernardo Batiz-Lazo
Bristol Business School

  1. How to induce entry in railway markets: The German experience By Rafael Lalive; Armin Schmutzler
  2. The Degree of Competition in the Thai Banking Industry before and after the East Asian Crisis By Kubo, Koji
  3. Integration versus Outsourcing in Stable Industry Equilibrium with Communication Networks By Okamoto, Yusuke
  4. Royalties vs. fees: How do firms pay for foreign technology? By Sharmila Vishwasrao
  5. Alliances between competitors and consumer information By Paolo Garella; Martin Peitz
  6. Reference Pricing of Pharmaceuticals By Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
  7. Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics By Steven Brakman; Harry Garretsen; Charles van Marrewijk
  8. The Impact of United States Sanctions on the Myanmar Garment Industry By Kudo, Toshihiro
  9. Was the Wealth of Nations Determined in 1000 B.C.? By Diego Comin; William Easterly; Erick Gong
  10. La convención de las Naciones Unidas contra la corrupción y su impacto sobre las empresas internacionales By Argandoña, Antonio
  11. Corporate governance in banking: The role of Board of Directors By Pablo de Andres Alonso; Eleuterio Vallelado Gonzalez
  12. Corporate Ownership Structure and Firm Performance: Evidence from Greek Firms By Panayotis Kapopoulos; Sophia Lazaretou
  13. Competing for Customers in a Social Network By Pradeep Dubey; Rahul Garg; Bernard De Meyer
  14. President Chain Store Corporation's Hsu Chong-Jen: A Case Study of a Salaried Manager in Taiwan By Sato, Yukihito
  15. The Formation of Financial Networks By Ana Babus
  16. Does Deregulation Change Economic Behavior of Firms? By Subal Kumbhakar; Efthymios Tsionas
  17. An Industrial Cluster Study: As A Basis For The Aegean Region's Development Policy By Nese Kumral; Çagaçan Deger
  18. Asymmetric Information and the Mode of Entry In Foreign Credit Markets By Eric Van Tassel; Sharmila Vishwasrao
  19. Executive Managers in Large Mexican Family Businesses By Hoshino, Taeko
  20. Newspapers market shares and the theory of the circulation spiral By J. J. Gabszewicz; Paolo Garella; N. Sonnac
  22. Market Power in Direct Marketing of Fresh Produce: Community Supported Agriculture Farms By Daniel A. Lass; Nathalie Lavoie; T. Robert Fetter
  23. Product Differentiation and Film Programming Choice: Do First-Run Movie Theatres Show the Same Films? By Darlene C. Chisholm; Margaret S. McMillan; George Norman
  24. Firm Investment and Financial Frictions By Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera

  1. By: Rafael Lalive (HEC Lausanne, University of Lausanne); Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: In Germany, competitive franchising is increasingly being used to procure passenger railway services. This paper analyzes the 77 tenders that have taken place since the railway reform in 1994. The tenders differ with respect to the size of the franchise network, the required frequency of service, the duration of the contract and the proximity to other lines that are already run by competitors of DB Regio, a subsidiary of the successor of the former state monopolist. Our analysis shows that larger networks are less likely to be won by the competitors. Also, more recent auctions have been won by competitors more frequently than earlier auctions. Other control variables such as the duration of the contract and the adjacency to other lines run by entrants are insignificant.
    Keywords: Competition for the market, liberalization, passenger railways, procurement auctions
    JEL: D43 D44 R48
    Date: 2006–11
  2. By: Kubo, Koji
    Abstract: This paper analyzes the influence of the East Asian crisis and the subsequent reforms on the oligopolistic nature of the Thai banking industry. Since the crisis, there have been substantial changes in competitive environment, including a decline in the family ownership of banks as well as the arrival of new entrants. How did these changes affect a banking industry in which the six largest local banks accounted for over 70 percent of market share? The estimated Lerner index from Bresnahan's [1989] conjectural variation model indicates the possibility of a decline in the degree of competition.
    Keywords: Thai banking industry, Degree of competition, Lerner index, Banks, Financial crises, Thailand
    JEL: L13 G21
    Date: 2006–03
  3. By: Okamoto, Yusuke
    Abstract: For the selection of a firm's structure between vertical integration and arm's-length outsourcing, the importance of the thickness of the market had been emphasized in the previous literature. Here we take account of communication networks such as telephone, telex, fax, and the Internet. By doing so, we could illustrate the relationship between communication networks and the make-or-buy decision. With communication network technology differing in each type of firm, both vertically integrated firms and arm's-length outsourcing firms coexist, which was never indicated in the previous literature. However, when common network technology is introduced, such coexistence generically does not occur.
    Keywords: Buyer-supplier relationship, Communication networks, International outsourcing, Vertical integration, Communication, Network, Industrial management, Telecommunication
    JEL: D23 D43 F23
    Date: 2006–03
  4. By: Sharmila Vishwasrao (Department of Economics, College of Business, Florida Atlantic University)
    Abstract: The theoretical determinants of technology licensing contracts have been extensively studied but empirical evidence is scarce. We assemble a data set of all the foreign technology licensing agreements entered into by manufacturing firms in India between 1989 and 1993. Industry, firm, and contract characteristics are used to explain differences between the forms of payment in licensing contracts. Our findings support theoretical arguments; licensing contracts are more likely to use royalties when sales are relatively high, while increased volatility of sales and greater profitability favor fixed fee contracts. We also find that firms are more likely to use output based payments to control the sale and diffusion of R&D or brand intensive know-how to unaffiliated firms.
    Keywords: Technology transfer; licensing contracts
    JEL: F23 L14 L24 O32
    Date: 2004–10
  5. By: Paolo Garella (University of Milano, Italy); Martin Peitz (International University in Germany, Bruchsal (Germany))
    Abstract: Alliances between competitors in which established firms provide access to proprietary resources, e.g. their distribution channels, are important business practices. We analyze a market where an established firm, firm A, produces a product of well-known quality, and a firm with an unknown brand, firm B, has to choose to produce high or low quality. Firm A observes firm B's quality choice but consumers do not. Hence, firm B is subject to a moral hazard problem which can potentially be solved by firm A. Firm A can accept or reject to form an alliance with firm B, which is observed by consumers. If an alliance is formed, firm A implicitly certifies the rival's product. Consumers infer that firm B is a competitor with high quality, as otherwise why would the established firm accept to form an alliance? The mechanism we discover allows for an economic interpretation of several types of business practices.
    Keywords: alliances, brand sharing, asymmetric information, signaling, exclusion, moral hazard, entry assistan
    JEL: L15 L13 L24 L42
    Date: 2006–00–01
  6. By: Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
    Abstract: We consider a therapeutic market with potentially three pharmaceutical firms. Two of the firms offer horizontally differentiated brand-name drugs. One of the brand-name drugs is a new treatment under patent protection that will be introduced if the profits are sufficient to cover the entry costs. The other brand-name drug has already lost its patent and faces competition from a third firm offering a generic version perceived to be of lower quality. This model allows us to compare generic reference pricing (GRP), therapeutic reference pricing (TRP), and no reference pricing (NRP). We show that competition is strongest under TRP, resulting in the lowest drug prices (and medical expenditures). However, TRP also provides the lowest profits to the patent-holding firm, making entry of the new drug treatment least likely. Surprisingly, we find that GRP distorts drug choices most, exposing patients to higher health risks.
    Keywords: pharmaceuticals, reference pricing, product differentiation
    JEL: I11 L13 L51 L65
    Date: 2006
  7. By: Steven Brakman; Harry Garretsen; Charles van Marrewijk
    Abstract: Using a detailed and large data set on cross-border merger and acquisitions we discuss the relationship between theory and observed empirical characteristics: (i) most FDI is in the form of M&As, (ii) firms engaged in M&As seem to be ‘market-seeking’, (iii) M&As come in waves (the most recent wave is still unfolding), (iv) economic integration (international deregulation) stimulated M&As, (v) the size of and inequality between M&As grows over time. Our contention in this chapter is that these stylized facts drive and should drive recent theoretical contributions in the field of international economics that try to understand cross-border mergers and acquisitions. Although some models (notably Neary, 2003) explain a number of the characteristics, a full-fledged model of cross-border M&As that, at least in principle, can deal with all the characteristics is still lacking.
    JEL: F23
    Date: 2006
  8. By: Kudo, Toshihiro
    Abstract: The United States imposed trade sanctions against the military regime in Myanmar in July 2003. The import ban damaged the garment industry in particular. This industry exported nearly half of its products to the United States, and more than eighty percent of United States imports from Myanmar had been clothes. The garment industry was probably the main target of the sanctions. Nevertheless, the impact on the garment industry and its workers has not been accurately evaluated or closely examined. The purpose of this paper is to evaluate the impact of the sanctions and to further understand the present situation. This is done using several sources of information, including the author's field and questionnaire surveys. This paper also describes the process of selection and polarization underway in the garment industry, an industry that now has more severe competition fueled by the sanctions. Through such a process, the impact was inflicted disproportionately on small and medium-sized domestic firms and their workers.
    Keywords: Myanmar (Burma), United States, Sanction, Garment industry, Apparel industry, Economic sanctions
    JEL: F19 L60 O14
    Date: 2006–10
  9. By: Diego Comin; William Easterly; Erick Gong
    Abstract: We assemble a dataset on technology adoption in 1000 B.C., 0 A.D., and 1500 A.D. for the predecessors to today's nation states. We find that this very old history of technology adoption is surprisingly significant for today's national development outcomes. Although our strongest results are for 1500 A.D., we find that even technology as old as 1000 BC matters in some plausible specifications.
    JEL: N7 O3
    Date: 2006–10
  10. By: Argandoña, Antonio (IESE Business School)
    Abstract: La corrupción es un grave problema económico, social, político y moral, especialmente en muchos países emergentes, que afecta de manera especial a las empresas, sobre todo en las transacciones internacionales, tanto comerciales como financieras o tecnológicas. Y es, cada vez más, un fenómeno de ámbito, contenido e implicaciones internacionales. De ahí que, en los últimos años, se hayan multiplicado las acciones internacionales para hacer frente al problema de la corrupción. Una de esas acciones es la Convención de las Naciones Unidas contra la Corrupción, firmada en 2003 y que entró en vigor en diciembre de 2005. Se trata del primer instrumento realmente global para prevenir y luchar contra la corrupción, basado en un amplio consenso internacional. El objetivo de este artículo es explicar el origen y contenido de la Convención, lo que aporta a los instrumentos internacionales para luchar contra la corrupción, y sus puntos fuertes y débiles, principalmente desde el punto de vista de las empresas.
    Keywords: Convención contra corrupción; Corrupción; Extorsión; Empresas internacionales; Soborno; Naciones Unidas;
    Date: 2006–10–06
  11. By: Pablo de Andres Alonso (Department of Financial Economics and Accounting, University of Valladolid); Eleuterio Vallelado Gonzalez (Department of Financial Economics and Accounting, University of Valladolid)
    Abstract: We test hypotheses on the dual role of boards of directors for a sample of large international commercial banks. We find an inverted U shaped relation between bank performance and board size that justifies a large board and imposes an efficient limit to the board’s size; a positive relation between the proportion of non-executive directors and performance; and a proactive role in board meetings. Our results show that bank boards’ composition and functioning are related to directors’ incentives to monitor and advise management. All these relations hold after we control for bank business, institutional differences, size, market power in the banking industry, bank ownership and investors’ legal protection.
    Keywords: Corporate Governance, Board of Directors, Commercial Banks
    JEL: G32
    Date: 2006–06
  12. By: Panayotis Kapopoulos (Emporiki Bank); Sophia Lazaretou (Bank of Greece, Economic Research Department)
    Abstract: The Berle-Means thesis (1932) implies that diffuse ownership adversely affects firm performance. This paper tries to investigate whether there is strong evidence to support the notion that variations across firms in observed ownership structures result in systematic variations in observed firm performance. We test this hypothesis by assessing the impact of the structure of ownership on corporate performance, measured by profitability, using data for 175 Greek listed firms. Following Demsetz and Villalonga (2001) we model ownership structure, first, as an endogenous variable and, second, we consider two different measures of ownership structure reflecting different groups of shareholders with conflicting interests. Empirical findings suggest that a more concentrated ownership structure positively relates to higher firm profitability. We also find that higher firm profitability requires a less diffused ownership.
    Keywords: Money demand; Ownership structure; Firm performance
    JEL: G32 G34
    Date: 2006–04
  13. By: Pradeep Dubey (Dept. of Economics, SUNY-Stony Brook); Rahul Garg (IBM India Research Lab); Bernard De Meyer (PSE, Universite Paris)
    Abstract: There are many situations in which a customer's proclivity to buy the product of any firm depends not only on the classical attributes of the product such as its price and quality, but also on who else is buying the same product. We model these situations as games in which firms compete for customers located in a "social network." Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. If there are no a priori biases between customers and firms, then there is a cut-off level above which high cost firms are blockaded at an NE, while the rest compete uniformly throughout the network. We also explore the relation between the connectivity of a customer and the money firms spend on him. This relation becomes particularly transparent when externalities are dominant: NE can be characterized in terms of the invariant measures on the recurrent classes of the Markov chain underlying the social network. Finally we consider convex (instead of linear) cost functions for the firms. Here NE need not be unique as we show via an example. But uniqueness is restored if there is enough competition between firms or if their valuations of clients are anonymous.
    Keywords: Social network, Game theory, Nash equilibrium, Competition game on a social network
    JEL: A14 C72 D11 D21 L1 L2
    Date: 2006–11
  14. By: Sato, Yukihito
    Abstract: Salaried managers have been increasing in top management of many Taiwanese companies. Why and how have their roles become more important? In order to answer these questions, it is necessary to examine the complicated relationships between salaried managers and the founders' families who appoint them to top-management positions. This paper examines the case of Hsu Chung-Jen, the president of President Chain Store Corporation. PCSC operates Taiwan's 7-ELEVENs, the largest convenience store chain on the island. He may be regarded as the most advanced salaried manager in Taiwan today.
    Keywords: Salaried manager, Business group, Retail and distribution, Retail trade, Manager, Industrial management, Taiwan
    JEL: L21 L81 M12 M13 M14 O53
    Date: 2006–10
  15. By: Ana Babus (Erasmus Universiteit Rotterdam)
    Abstract: Modern banking systems are highly interconnected. Despite their various benefits, the linkages that exist between banks carry the risk of contagion. In this paper we investigate how banks decide on direct balance sheet linkages and the implications for contagion risk. In particular, we model a network formation process in the banking system. The trade-off between the gains and the risks of being connected shapes banks ’incentives to form links. We show that banks manage to form networks that are resilient to contagion. Thus, in an equilibrium network, the probability of contagion is virtually 0.
    Keywords: financial stability; network formation; contagion risk
    JEL: G21 D82
    Date: 2006–10–23
  16. By: Subal Kumbhakar (Department of Economics, State University of New York, USA); Efthymios Tsionas (Department of Economics, Athens University of Economics and Business, Greece)
    Abstract: Cost minimization and profit maximization behavioral assumptions are most widely used in microeconomic theory to analyze firm behavior. However, in practice researchers do not know whether every firm in the sample maximizes profit or minimizes cost. In this paper we address this problem via a latent class modeling approach in which we first consider the cost minimization problem (first class) and then the profit maximization problem (second class). The two problems are then mixed and the probabilities of class membership are made functions of covariates. This approach does not require researchers to know which firms maximize profit and which ones minimize cost. On the contrary, it helps us to determine not only which firms behave like profit maximizers but also why and what differentiates them from firms that failed to maximize profit. The new technique is illustrated using a panel data for the US airlines. The empirical findings suggest that very few airlines maximize profit consistently (if at all) and that deregulation had a positive impact on the chances of behaving like profit maximizers, although very few airlines continue to maximize profit even after the deregulation.
    JEL: N
  17. By: Nese Kumral; Çagaçan Deger (Department of Economics, Ege University)
    Abstract: The Aegean Region, which is the focus of this study, is the second most developed region of Turkey. Its share in the GDP has remained relatively stable around 17 percent during 1990-2000 periods according to data provided by State Planning Organization of Turkey. The region enjoys a number of advantages like; high quality human resources, rich experience in manufacturing industry going back to the 19th century, small and medium sized industries comprising the majority of enterprises, a promising potential for inter-firm network development particularly in industries like food, wearing apparels, leather, metal wares and automotive,relatively more foreign direct investment in various branches, an international port, universities,geographic location. However, despite these advantages, the region also has some disadvantages which can be summarized as follows: the lack of implementation of an effective regional development policy,limited number of regional institutions, inadequate institutional coordination between these institutions,poor vocational training, high level of brain drain, foreign trade of the traditional commodities of the region,inefficient R&D, low technology level, etc. In order to overcome these disadvantages, regional resources need to be reallocated according to the requirements of a global competitive environment in the framework of new regional policy. The study aims to identify manufacturing-based clusters across the Aegean Region and these clusters’ provincial locations, so that a base can be formed for potential regional policies. Department of Trade and Industry’s analysis of UK clusters is taken as the basis of methodology to be applied in this paper.
    JEL: O18 L60 R12
    Date: 2006–03
  18. By: Eric Van Tassel (Department of Economics, College of Business, Florida Atlantic University); Sharmila Vishwasrao (Department of Economics, College of Business, Florida Atlantic University)
    Abstract: In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.
    Keywords: Foreign entry, bank competition, information
    JEL: G21 D82
    Date: 2006–08
  19. By: Hoshino, Taeko
    Abstract: The involvement of members of owners' families in the running of large family businesses in Mexico is decreasing. Although family members still hold key posts such as that of CEO, other executive posts tend to be delegated to professional salaried managers. Top managers, including family members, share some common characteristics. They are young compared with managers in other developed countries, their quality as human resources is high, and many of them are graduates of overseas MBA courses. Most of them are sufficiently experienced. Improvement of quality among top managers is a recent phenomenon in Mexico, and has been encouraged mainly by the following two factors. First, globalization of business activities was promoted by intense competition among firms under conditions of market liberalization. In order to equip themselves with the ability to cope with the globalization of their operations, large family businesses tried hard to improve the quality of top management, by training and educating existing managers, and/or by recruiting managers in the outside labor market. Second, developments in the Mexican economy during the 1990s led to a growth in the labor market for top managers Thus, business restructuring caused by bankruptcy, as well as mergers and acquisitions, privatization and so on, led to the dismissal of business managers who then entered the labor market in large numbers. The increasing presence of these managers in the labor market helped family businesses to recruit well-qualified senior executives.
    Keywords: Family business, Ownership, Management, Managers, Mexico, Family concern, Large-scale enterprises, Industrial management
    JEL: K22 L22 M12 M13
    Date: 2006–10
  20. By: J. J. Gabszewicz (CORE, Universit´e Catholique de Louvain); Paolo Garella (University of Milano, Italy); N. Sonnac (CREST-LEI and Universit´e Paris II)
    Abstract: We consider a model of daily newspapers’ competition to test the validity of the so called ”theory of the circulation spiral”. According to it, the interaction between the newspapers and the advertising markets drives the newspaper with the smaller readership into a vicious circle, finally leading it to death. In a model with two newspapers, we show that, contrary to this conjecture, the dynamics envisaged by the proposers of the theory, does not always lead to the elimination of one of them.
    Date: 2005–11–05
  21. By: María Jose Sanchez Bueno; Isabel Suarez Gonzalez
    Abstract: El objetivo del presente trabajo es analizar la coherencia entre la estrategia de diversificación y la estructura multidivisional y su efecto sobre los resultados empresariales para el conjunto de los grandes grupos empresariales españoles diversificados. Para ello, y con el fin también de profundizar en los conceptos multidimensionales de estrategias de diversificación y estructuras multidivisionales, se utiliza el enfoque de la coherencia como desviación a un perfil “ideal”. Los resultados muestran que existen tres categorías estratégicas (diversificación relacionada, diversificación no relacionada y diversificación basada en el conocimiento), cada una de las cuales posee unas características estructurales “ideales” distintas. No obstante, sólo en el caso de la diversificación basada en el conocimiento se ha podido comprobar que la falta de coherencia entre la estrategia y la estructura tiene consecuencias negativas en la rentabilidad.
    Date: 2006–11
  22. By: Daniel A. Lass (Department of Resource Economics, University of Massachusetts Amherst); Nathalie Lavoie (Department of Resource Economics, University of Massachusetts Amherst); T. Robert Fetter (Science Applications International Corporation)
    Abstract: CSA farms establish a loyal customer base and, potentially, market power. A new empirical industrial organization (NEIO) approach and survey data from Northeast CSA farms are used to determine whether CSA farms have market power and the extent to which they exercise their market power. Results suggest CSA farms exert about two percent of their potential monopoly power.
    Keywords: Community Supported Agriculture; New Empirical Industrial Organization; Market Power; Fresh Produce; Organic Agriculture
    JEL: D42 L12 Q13
    Date: 2005–01
  23. By: Darlene C. Chisholm; Margaret S. McMillan; George Norman
    Abstract: We present an empirical analysis of product differentiation using a new dynamic panel data set on film programming choice in a major U.S. metropolitan motion-pictures exhibition market. Using these data, we compute two measures of film programming choice which allow us to investigate the determinants of strategic product differentiation in a multi-characteristics space. Our evidence is consistent with the idea that the degree of product differentiation between theatre pairs reflects a balance between strategic concerns and contractual constraints. Similarity in one dimension is offset by differentiation in others. Finally, we find that ownership matters: theatres under common ownership make more similar programming choices than theatres with different owners.
    JEL: C33 L11 L82
    Date: 2006–10
  24. By: Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera
    Abstract: In this paper we investigate the analytical and empirical linkages between firms' capital investment behavior and financial frictions arising from asymmetric information, proxied by firms' liquidity and degree of uncertainty. Measures of intrinsic and extrinsic uncertainty are derived from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. We employ a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984-2003 period. Financial frictions captured by interactions between firms' cash flow and both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms' investment spending, while extrinsic uncertainty has a positive impact.
    Keywords: capital investment, asymmetric information, financial frictions, uncertainty, CAPM
    JEL: E22 D81 C23
    Date: 2006

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