nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2007‒10‒27
twelve papers chosen by
Joao Jose de Matos Ferreira
University of the Beira Interior

  1. Subsidiary strategy: The embeddedness component By Garcia-Pont, Carlos; Canales, Juan I.; Noboa, Fabrizio
  2. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas-Ruiz
  3. Size, Innovation and Internationalization: A Survival Analysis of Italian Firms By Giorgia Giovannetti; Giorgio Ricchiuti; Margherita Velucchi
  4. Barriers to Innovation faced by Manufacturing Firms in Portugal: How to overcome it? By Silva, Maria; Leitão, João; Raposo, Mário
  5. Games of strategic complementarities: An application to bayesian games By Vives, Xavier
  6. The dynamics of market structure and market size in two health services industries By Timothy Dunne; Shawn D. Klimek; Mark J. Roberts; Yi Xu
  7. How does competition impact bank risk-taking? By Gabriel Jiménez; Jose A. Lopez; Jesús Saurina
  8. Vertical Integration and Exclusivity in Two-Sided Markets By Robin S. Lee
  9. An endogenous growth model with quality ladders and consumers’ heterogeneity By Marasco, Antonio
  10. Corporate Control and the Stock Market By Stefano Demichelis; Klaus Ritzberger
  11. Customer Infomation Sharing: Strategic Incentives and New Implications By Byung-Cheol Kim; Jay Pil Choi
  12. New Technology, Human Capital and Growth for Developing Countries By Cuong Le Van; Manh-Hung Nguyen; Thai Bao Luong; Tu-Anh Nguyen

  1. By: Garcia-Pont, Carlos (IESE Business School); Canales, Juan I. (University of St. Andrews); Noboa, Fabrizio (USFQ Business School)
    Abstract: This paper inductively derives a model that develops the concept of subsidiary embeddedness as the canvas within which subsidiary strategy can take place. Our model identifies three hierarchical levels of embeddedness: Operational embeddedness relates to the interlocking day-to-day relations. Capability embeddedness deals with the development of competitive capabilities for the multinational as a whole. Strategic embeddedness deals with subsidiary participation in the MNC strategy setting. We deem these three types of embeddedness as ways to develop subsidiary strategic alternatives. In as such, different types of subsidiary embeddedness imply different subsidiary roles. Embeddedness, as it was inductively derived from a revelatory case study, is not merely an outcome of the institutional setting, but a resource a subsidiary can manage by means of manipulating dependencies or exerting influence over the allocation of critical resources. A subsidiary can modify its embeddedness to change its strategic restraints. Therefore, the development of subsidiary embeddedness becomes an integral part of subsidiary strategy.
    Keywords: Multinational management; subsidiary; strategy; organization;
    Date: 2007–07–09
  2. By: Omar Licandro; Antonio Navas-Ruiz
    Abstract: The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a two-country endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms' market power.
    Keywords: Trade openess, competition and growth, R&D
    JEL: F13 F43 O3
    Date: 2007
  3. By: Giorgia Giovannetti (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Giorgio Ricchiuti (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Margherita Velucchi (Università degli Studi di Firenze, Dipartimento di Statistica “G. Parenti”)
    Abstract: The birth of new enterprises and their survival in the market are often seen as a crucial variable of economic growth and competitiveness in a modern economy. This paper focuses on business demography of Italian firms, using a merged dataset between Capitalia-Reprint and AIDA, to identify the relationships among firms’ characteristics their demographic dynamics and survival. We show that size and technological level increases survival probability. Internationalized firms show higher failure risk: on average the competition is stronger on international markets, forcing firms to be more efficient. Finally, a long lasting successful internationalized firm is a high-tech, large and innovating firm.
    Keywords: Business Demography, Survival, Competitiveness, Internationalization
    JEL: C41 L11 L25 F21
    Date: 2007
  4. By: Silva, Maria; Leitão, João; Raposo, Mário
    Abstract: This paper aims to identify the barriers to innovation that influence the innovation capability of Portuguese industrial firms. The literature review about innovation makes use of two references approaches: (i) the systemic; and (ii) the networks and inter-organizational relationships. The database is obtained through the Community Innovation Survey II (CIS II) conducted by EUROSTAT. Furthermore, from the results several public policies are proposed in order to overcome the restraining factors of the entrepreneurial innovative capability.
    Keywords: Innovation; Entrepreneurial Innovative Capability.
    JEL: O38 O31
    Date: 2007–10–23
  5. By: Vives, Xavier (IESE Business School)
    Abstract: Games of strategic complementarities are those in which any player increases his action in response to an increase in the level of actions of rivals. This paper provides an introduction to the theory of games of strategic complementarities, considers Bayesian games, and provides an application to global games.
    Keywords: Strategic complementarities; games theory;
    Date: 2007–07–07
  6. By: Timothy Dunne; Shawn D. Klimek; Mark J. Roberts; Yi Xu
    Abstract: The relationship between the size of a market and the competitiveness of the market has been of long-standing interest to IO economists. Empirical studies have used the relationship between the size of the geographic market and both the number of firms in the market and the average sales of the firms to draw inferences about the degree of competition in the market. This paper extends this framework to incorporate the analysis of entry and exit flows. A key implication of recent entry and exit models is that current market structure will likely depend upon the history of past participation. The paper explores these issues empirically by examining producer dynamics for two health service industries, dentistry and chiropractic services.
    Keywords: Markets ; Industrial organization ; Service industries
    Date: 2007
  7. By: Gabriel Jiménez; Jose A. Lopez; Jesús Saurina
    Abstract: A common assumption in the academic literature and in the actual supervision of banking systems worldwide is that franchise value plays a key role in limiting bank risk-taking. As the underlying source of franchise value is assumed to be market power, reduced competition has been considered to promote banking stability. Boyd and De Nicolo (2005) propose an alternative view where concentration in the loan market could lead to increased borrower debt loads and a corresponding increase in loan defaults that undermine bank stability. Martinez-Miera and Repullo (2007) encompass both approaches by proposing a nonlinear relationship between competition and bank risk-taking. Using unique datasets for the Spanish banking system, we examine the empirical nature of that relationship. After controlling for macroeconomic conditions and bank characteristics, we find that standard measures of market concentration do not affect the ratio of non-performing commercial loans (NPL), our measure of bank risk. However, using Lerner indexes based on bank-specific interest rates, we find a negative relationship between loan market power and bank risk. This result provides evidence in favor of the franchise value paradigm.
    Keywords: Bank competition
    Date: 2007
  8. By: Robin S. Lee (Harvard Busines School and Department of Economics, Harvard University)
    Abstract: This paper develops techniques to analyze the adoption decisions of both consumers and firms for competing platform intermediaries in two-sided markets, and applies the methodology to empirically measure the impact of vertical integration and exclusive contracting in the sixth-generation of the U.S. videogame industry (2000-2005). I first introduce a framework to structurally estimate consumer demand in these types of hardware-software markets which (i) simultaneously analyzes both hardware and software adoption decisions; (ii) accounts for dynamic issues including the selection of heterogenous consumers across platforms, durability of goods, and agents’ timing of purchases; and (iii) explicitly provides the marginal contribution of an individual software title to each platform’s installed base of users. Demand results show the gains obtained by a platform provider from exclusive access to certain software titles can be large, and failure to account for dynamics, consumer heterogeneity, and multiple hardware purchases significantly biases estimates. I next specify dynamic network formation game to model the adoption decision of hardware platforms by software providers. Counterfactual experiments indicate that vertical integration and exclusivity benefited the smaller entrant platforms and not the dominant incumbent, which stands contrary to the interpretation of exclusivity as primarily a means of foreclosure and entry deterrence.
    Keywords: platform competition, two-sided markets, vertical integration, exclusive contracting, dynamic demand, network formation, videogame industry
    JEL: C61 C63 C73 L13 L14 L42 L86
    Date: 2007–10
  9. By: Marasco, Antonio
    Abstract: This paper develops an endogenous growth model with quality ladders where consumers heterogeneity is assumed and is modelled through non homothetic preferences. We show that in such a model, unlike mainstream quality ladders models, the steady state equilibrium is characterised by a duopoly were the state of the art technology and the one immediately below it are both able to survive and thrive, under given conditions for the income distribution. In the words of Schumpeter, this model delivers only partial creative destruction. Furthermore, we show that under duopoly, an increase in the degree of income inequality, raises the intensity of research activities and the growth rate of the economy.
    Keywords: Industrial Organization; Income Distribution; Technological Change; Innovation; Growth
    JEL: O40 O30 D40
    Date: 2002–09
  10. By: Stefano Demichelis; Klaus Ritzberger
    Abstract: This paper studies a general equilibrium model with an investor controlled firm. Shareholders can vote on the firm’s production plan in an assembly. Prior to that they may trade shares on the stock market. Since stock market trades determine the distribution of votes, trading is strategic. There is always an equilibrium, where share trades lead to owners deciding for competitive behavior, but there may also be equilibria, where monoplistic behavior prevails.
    Keywords: Corporate governance, general equilibrium, objective function of the firm, shareholder voting, stock markets.
    JEL: D21 D43 D51 G32 G34
    Date: 2007
  11. By: Byung-Cheol Kim (Michigan State University); Jay Pil Choi (Michigan State University)
    Abstract: We study oligopolistic firms' incentives to share customer information about past purchase history in a situation where firms are uncertain about whether a particular consumer considers the product offerings complements or substitutes. By addressing this new type of behavior-based price discrimination, we show that both the incentive to share customer information and its effects on consumers depend crucially on the relative magnitudes of the prices that would prevail in the complementary and substitute markets if consumers were fully segmented according to their preferences. This paper has important implications for merger analysis when the primary motive for merger is the acquisition of another firm's customer lists. We also find that the informational regime in which firms reside can have an influence upon the choice of product differentiation. Additionally, our analysis suggests a new role of middlemen as information aggregators.
    Keywords: Customer Information Sharing, Complements and Substitutes, Product Differentiation, Behavior-Based Price Discrimination, Merger and Acquisition, Middlemen
    JEL: D43 D62 D83 L14 L51 M31
  12. By: Cuong Le Van (Centre d’Economie de la Sorbonne, Universite Paris-1, France); Manh-Hung Nguyen (Centre d’Economie de la Sorbonne, Universite Paris-1, France); Thai Bao Luong (Centre d’Economie de la Sorbonne, Universite Paris-1, France); Tu-Anh Nguyen (Centre d’Economie de la Sorbonne, Universite Paris-1, France)
    Abstract: We consider a developing country with three sectors in economy: consumption goods, new technology, and education. Productivity of the consumption goods sector depends on new technology and skilled labor used for production of the new technology. We show that there might be three stages of economic growth. In the first stage the country concentrates on production of consumption goods; in the second stage it requires the country to import both physical capital to produce consumption goods and new technology capital to produce new technology; and finally the last stage is one where the country needs to import new technology capital and invest in the training and education of high skilled labor in the same time.
    Keywords: Optimal growth model, New technology capital, Human Capital, Developing country
    JEL: D51 E13
    Date: 2007–08

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