nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2009‒11‒27
eighteen papers chosen by
Joao Jose de Matos Ferreira
University of the Beira Interior

  1. Knowledge Spillovers from Creation to Exploitation: A Theoretical Model with Implications for Firms and Public Policy By Zoltan J. Acs; Claire Economidou; Mark Sanders
  2. Competition and Quality Upgrading By Amiti, Mary; Khandelwal, Amit
  3. Cash-out or flame-out! Opportunity cost and entrepreneurial strategy: Theory, and evidence from the information security industry By Ashish Arora; Anand Nandkumar
  4. International Trade, Foreign Direct Investment, and Technology Spillovers By Keller, Wolfgang
  5. Competing process and quality innovation in a model of occupational choice By Colin Davis; Yasunobu Tomoda
  6. Internal and external factors of competitiveness in the middle-income countries By Isabel Álvarez,; Raquel Marín; Georgina Maldonado
  7. The Strategy of Manipulating Conflict By Sandeep Baliga; Tomas Sjostrom
  8. Energy prices and China’s international competitiveness By Chen , Guifu; Hamori, Shigeyuki
  9. How General Are General Purpose Technologies? Evidence from nano-, bio- and ICT-technologies in Finland By Tuomo Nikulainen; Martti Kulvik
  10. Strategies in Social Network Formation By Anna Conte; Daniela Di Cagno; Emanuela Sciubba
  11. Consideration Sets and Competitive Marketing By Eliaz, Kfir; Spiegler, Ran
  12. Competition Among the Big and the Small By Shimomura, Ken-Ichi; Thisse, Jacques-François
  13. Network Effects, Market Structure and Industry Performance By Rabah Amir; Natalia Lazzati
  14. The effects of local systems on the international de-localisation of production.The case of made in taly By Maria Savona; Roberto Schiattarella
  15. The Impact of the Global Economic Crisis on Industrialization of Least Developed Countries By Shafaeddin, Mehdi
  16. Services outsourcing and innovation: An empirical investigation By Görg, Holger; Hanley, Aoife
  17. Why do Employees Leave Their Jobs for Self-Employment? – The Impact of Entrepreneurial Working Conditions in Small Firms By Werner, Arndt; Moog, Petra
  18. Competition Policy and Productivity Growth: An Empirical Assessment By Buccirossi, Paolo; Ciari, Lorenzo; Duso, Tomaso; Spagnolo, Giancarlo; Vitale, Cristiana

  1. By: Zoltan J. Acs; Claire Economidou; Mark Sanders
    Abstract: In this paper we present an endogenous growth model in which we investigate the implications of knowledge spillovers between knowledge creators (inventors) and commercializers (innovators). We then turn to the question how such knowledge spillovers affect value creation within and among organizations as well as at the aggregate level and discuss how the internalization of these knowledge spillovers can help improve economic performance at both levels.
    Keywords: knowledge spillovers; innovation management; strategic entrepreneurship
    JEL: L26 O31 O32 O38
    Date: 2009–11
  2. By: Amiti, Mary; Khandelwal, Amit
    Abstract: How does competition affect innovation? We address this question by using a novel approach to measure quality - an important component of innovation - using highly disaggregated product data for a large set of countries. Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks. We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firms’ proximity to the world technological frontier. As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.
    Keywords: Competition; Growth; Proximity to Frontier; Quality Upgrading
    JEL: F1
    Date: 2009–11
  3. By: Ashish Arora; Anand Nandkumar
    Abstract: We analyze how entrepreneurial opportunity cost conditions performance. We depart from the literature on entrepreneurship which identifies survival with performance. Instead, many entrepreneurs aim for a cash-out (IPO or acquisition), especially in innovation based industries. Striving for a cash-out makes mistakes more likely and increases the probability of failure. High opportunity cost entrepreneurs will attempt to cash-out (IPO or friendly acquisition) quickly, even if it implies a higher risk of failure. Entrepreneurs with fewer outside alternatives may tend to linger on longer. We formalize this intuition with a simple model. Using a novel dataset of information security startups we find that entrepreneurs with high opportunity costs are not only more likely to cash-out but they are also more likely to fail. As well, our results confirm the predicted role of venture quality in conditioning the relationship between entrepreneurial opportunity cost and entrepreneurial performance.
    JEL: J4 L26 O3
    Date: 2009–11
  4. By: Keller, Wolfgang
    Abstract: This paper examines how international flows of technological knowledge affect economic performance across industries and firms in different countries. Motivated by the large share of the world's technology investments made by firms that are active across borders, we focus on international trade and multinational enterprise activity as conduits for technological externalities, or spillovers. In addition to reviewing the recent empirical research on technology spillovers, the discussion is guided by a new model of foreign direct investment, trade, and endogenous technology transfer. We find evidence for technology spillovers through international trade and the activity of multinational enterprises. The analysis also highlights challenges for future empirical research, as well as the need for additional data on technology and innovation.
    Keywords: Intra-firm trade; Learning-by-exporting; Multinational firms; Tacit knowledge; Technological externalities; Technology diffusion; Total factor productivity
    JEL: F1 F2 O3 O4
    Date: 2009–10
  5. By: Colin Davis (Kobe University, Graduate School of Economics); Yasunobu Tomoda (Kyoto University, Institute of Economic Research)
    Abstract: We develop a simple model of endogenous growth and occupational choice in which skill differentiated workers choose between three types of employment activity: production, process innovation,and quality innovation. Incumbent firms invest in process innovation to reduce production costs and market entrants invest in quality improvements in order to capture the market from vintage product lines. We use this framework to examine innovation incentives for incumbent firms in an environment of creative destruction and find that there are two plausible and stable patterns of product evolution: a corner equilibrium with quality growth alone, and an interior equilibrium with both productivity growth and quality growth. We also show that the process innovation of an interior equilibrium has important policy implications for economic growth.
    Keywords: Process innovation;Quality innovation; Endogenous growth; Occupational choice
    Date: 2009–11
  6. By: Isabel Álvarez,; Raquel Marín; Georgina Maldonado
    Abstract: The diverse group of middle-income countries (MIC) is composed by some economies with an active behavior in exports of technology-intensive goods that is strictly better than the group average. One of the factors explaining such a result is the improvement of their national technological capabilities that affects the dynamism of their productive and trade structure generating competitiveness gains. There are grounded reasons to think that this is also a consequence of external effects and the potential impacts that both trade and foreign direct investments (FDI) flows generate in those economies where foreign companies have contributed to the industrialization and modernization of their productive systems. In this paper, we analyze the possibilities of integration of the MIC economies into the dynamic high-tech markets as the interplay between the role of FDI and their ability for the absorption and creation of technology. We will observe based upon empirical analysis with panel data (1998-2005), what is the relative importance of internal and external factors for the improvement of the international competitiveness in these developing economies.
    Keywords: competitiveness, FDI, high-tech, middle income countries, competitividad, IDE, alta tecnología, países de renta media
    Date: 2009
  7. By: Sandeep Baliga (Northwestern); Tomas Sjostrom (Rutgers)
    Abstract: Two decision-makers choose hawkish or dovish actions in a conflict game with incomplete information. The decision-making can be manipulated by "extremists" who send publicly observed cheap-talk messages. The power of extremists depends on the nature of the underlying conflict game. If actions are strategic complements, a "hawkish extremist" can increase the likelihood of conflict by sending messages which trigger a "fear-spiral" of hawkish actions. This reduces the welfare of both decision-makers. If actions are strategic substitutes, a "dovish extremist" (pacifist) can send messages which cause one decision-maker to back down and become more dovish. This reduces his welfare but benefits the other decision-maker. The hawkish extremist is unable to manipulate the decision-makers if actions are strategic substitutes, and the pacifist is equally powerless if actions are strategic complements.
    Keywords: global strategy
    JEL: C7
    Date: 2009–08–28
  8. By: Chen , Guifu; Hamori, Shigeyuki
    Abstract: This paper uses the CCF approach to analyze and determine whether there is a causal relationship between the world energy price index and China’s international competitiveness. The data on the volatility of energy prices can provide information in addition to that available in the price data alone. Our analysis suggests that the volatility of energy prices has significant implications concerning information linkages between the energy market and China’s international competitiveness.
    Keywords: energy prices; international competitiveness; CCF approach; Chinese economy
    JEL: Q43
    Date: 2009–11
  9. By: Tuomo Nikulainen; Martti Kulvik
    Abstract: ABSTRACT : General purpose technologies (GPT) have a significant impact on economic activity through radical technological change and wide technological diffusion. This paper aims to address the generality of technologies associated with the GPT concept. Information and communications technologies (ICT), biotechnology and nanotechnology are viewed as existing or potential general purpose technologies, but there is a lack of empirical evidence of their generality. This paper addresses the argument by using patent, industry and company level data from Finland. The results provide evidence that ICT, as expected, is a GPT. Nanotechnology shows signs of being potentially widely applicable, but for biotechnology the channels of technological diffusion seem to be fewer and more focused on areas where Finnish companies are less active. The results and discussion are also reflected on the newly formed innovation policy instrument in Finland - SHOKs (Strategic centres for science, technology and innovation), which aim to direct a large share of the Finnish public R&D subsidies towards more demand-based and incumbent-driven innovation activity.
    Keywords: general purpose technology, technology diffusion, science-based technology, ICT, biotechnology, nanotechnology, SHOK
    JEL: O30 O33 O38
    Date: 2009–11–20
  10. By: Anna Conte (Max-Planck-Institut für Ökonomik); Daniela Di Cagno (LUISS Guido Carli); Emanuela Sciubba (Birkbeck College)
    Abstract: We run a computerised experiment of network formation where all connections are beneficial and only direct links are costly. Players simultaneously submit link proposals; a connection is made only when both players involved agree. We use both simulated and experimentally generated data to test the determinants of individual behaviour in network formation. We find that approximately 40% of the network formation strategies adopted by the experimental subjects can be accounted for as best responses. We test whether subjects follow alternative patterns of behaviour and in particular if they: propose links to those from whom they have received link proposals in the previous round; propose links to those who have the largest number of direct connections. We find that together with best response behaviour, these strategies explain approximately 75% of the observed choices. We estimate individual propensities to adopt each of these strategies, controlling for group effects. Finally we estimate a mixture model to highlight the proportion of each type of decision maker in the population.
    Keywords: network formation, experiments, mixture models
    Date: 2009–11–16
  11. By: Eliaz, Kfir; Spiegler, Ran
    Abstract: We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-defined preferences to a “consideration set”, which is a function of the marketing devices employed by the firms. We examine the implications of this behavioral model in the context of a competitive market model, particularly on industry profits, vertical product differentiation, the use of marketing devices and consumers’ conversion rates.
    Keywords: Advertising; Bounded rationality; Consideration sets; Irrelevant alternatives; Limited attention; Marketing; Persuasion
    JEL: C72 D11 D21 D43
    Date: 2009–09
  12. By: Shimomura, Ken-Ichi; Thisse, Jacques-François
    Abstract: Armchair evidence shows that many industries are made of a few big commercial or manufacturing firms, which are able to affect the market outcome, and of a myriad of small family-run businesses with very few employees, each of which has a negligible impact on the market. Examples can be found in apparel, catering, publishers and bookstores, retailing, finance and insurances, and IT industries. We provide a new general equilibrium framework that encapsulates both market structures. Due to the higher toughness of the market, the entry of big firms leads them to sell more through a market expansion effect, which is generated by the exit of small firms. Furthermore, the level of social welfare increases with the number of oligopolistic firms because the procompetitive effect associated with the entry of a big firm dominates the resulting decrease in product variety.
    Keywords: monopolistic competition; oligopoly; product differentiation; welfare
    JEL: L13 L40
    Date: 2009–08
  13. By: Rabah Amir (Department of Economics, University of Arizona); Natalia Lazzati (Department of Economics, University of Arizona)
    Abstract: This paper provides a thorough analysis of oligopolistic markets with positive demand-side network externalities and perfect compatibility. The minimal structure imposed on the model primitives is such that industry output increases in a firm's rivals' total output as well as in the expected network size. This leads to a generalized equilibrium existence treatment that includes guarantees for a nontrivial equilibrium, and some insight into possible multiplicity of equilibria. We formalize the concept of industry viability and show that it is always enhanced by having more firms in the market. We also characterize the effects of market structure on industry performance, with an emphasis on departures from standard markets. As per-firm profits need not be monotonic in the number of competitors, we revisit the concept of free entry equilibrium for network industries. The approach relies on lattice-theoretic methods, which allow for a unified treatment of various general results in the literature on network goods. Several illustrative examples with closed-form solutions are also provided.
    Keywords: Network effects, demand-side externalities, Cournot oligopoly, supermodularity.
    JEL: C72 D43 L13 L14
    Date: 2009–09
  14. By: Maria Savona (University of Sussex(UK)); Roberto Schiattarella (University of Camerino (Italy))
    Abstract: The paper examines the fragmentation of production from the view-point of industrialised countries. From this perspective, the following questions are addressed: how do local systems evolve in the process of de-localisation of productions? Which are the short term and long term effects to be expected? Can we interpret these processes under the light of changing specialization of economic systems, necessarily associated with gains from trade? Evidence is provided on the internationalization of manufacturing activities that are commonly identified as “made in Italy”, with specific reference to the textile and footwear industries. The focus will be on the re-organization of economic activities at the level of local systems specialized in these industries, rather than on individual firms; on the whole set of international operations involved in this process, regardless of the legal form adopted (FDIs, import-export, cooperative agreements and licensing); and on how changes in the international organisation of production in these industries are associated with changes in the economic performances within these industries as well as in related sectors, such as service industries.
    Keywords: Foreign Direct Investments,Import-export cooperative agreements, Licensing.
    JEL: R3 F21 F23
    Date: 2009
  15. By: Shafaeddin, Mehdi
    Abstract: The author examines the impact of the external shock resulting from recent global economic crisis on industrialization of least developed countries. LDCs are marginalized in international trade and output, yet they are highly integrated into the world economy, suffer from structural weaknesses, balance of payments and fiscal constraints; and they are dependent on production and exports of primary commodities and external sources of finance. The commodity boom of 2003-08 which allowed them to accelerate their GDP and MVA was followed by a “bust”. Food and fuel importing LDCs, in particular, have suffered from both the “boom” and the “bust”. As a result of the decline in their exports, workers remittances and external sources of finance, most LDCs have suffered from significant decline not only in their GDP and MVA, the closure of a number of their factories, thus unemployment, but also in their investment in production capacity The exposure of their manufacturing sector to severe external competitive pressure (resulting inter alia from changes in the rules of the game on international competition, increased the need for nurturing their manufacturing sector. Yet, their policy space has diminished due to pre-mature trade liberalization and “market oriented” strategies imposed on them. As a result, despite the acceleration of growth in their MVA during the boom years, most LDCs have faced de-industrialization as compared with their situation in early 1980s. The global economic crisis is a wake-up call for LDCs to reconsider their long-term industrial and development strategies. There is no “one-size-fit-for-all” strategy, but we have made, in this paper, some common as well as specific policy proposals for industrial development of various groups of LDCs. These countries still have some room to manoeuvre despite their loss of policy space. Further, in order to avoid the risk of human tragedy, particularly in Sub-Saharan countries we calls for changes in WTO rules and reconsideration of policies of IFIs towards LDCs , and resistance to the proposed Economic Partnership Agreements (EPAs). ---------------------------------------------------------------------------------------------------- *Mehdi Shafaeddin is a development economist with a D.Phil. degree from Oxford University. He is the former Head, Macroeconomics and Development Policies Branch, UNCTAD. He is currently affiliated with the Institute of Economic Research, University of Neuchâtel, Switzerland and the author of many articles on trade and industrial policies. His recent work includes Trade Policy at the Crossroads: The Recent Experience of Developing Countries, Palgrave and Competitiveness and Industrial Development, Anthem Press, forthcoming. Comments can be sent to him through or
    Keywords: Trade and industrial policies; least developed countries; global economic crisis
    JEL: F40 F00 F10 E00
    Date: 2009–11–19
  16. By: Görg, Holger; Hanley, Aoife
    Abstract: We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing of services, but the magnitude is smaller. This makes intuitive sense, as international outsourcing allows more scope for exploiting international factor price differentials, therefore giving the establishment higher profits and more scope to restructure production activities towards innovation. We also find that international services outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis.
    Keywords: innovation; offshoring; R&D; services outsourcing
    JEL: F19 O31
    Date: 2009–08
  17. By: Werner, Arndt; Moog, Petra
    Abstract: Based on the finding that entrepreneurs who found new firms tend to work as employees of small rather than large firms prior to start-up, we test how different working conditions, which enhance entrepreneurial learning, affect their decision to become entrepreneurs when moderated by firm size. Based on data of the German Socio-Economic Panel (SOEP), we find a significant relationship between entrepreneurial learning (extracted in an orthogonal factor analysis based on twelve working conditions as proxy for entrepreneurial human capital and work experience) and firm size when predicting the probability of leaving paid employment for self-employment. We think, that this is a special kind of knowledge spillover. We also control for other aspects such as gender, age, wage, etc. – factors that may potentially influence the decision to become self-employed. Thus, our analysis sheds new light onto the black box of SMEs as a hotbed of new start-ups.
    Keywords: Entrepreneurship; Occupational Choice; Working Conditions; Human Capital
    JEL: J28 M54 J24 M13 C33
    Date: 2009–11–01
  18. By: Buccirossi, Paolo; Ciari, Lorenzo; Duso, Tomaso; Spagnolo, Giancarlo; Vitale, Cristiana
    Abstract: This paper empirically investigates the effectiveness of competition policy by estimating its impact on Total Factor Productivity (TFP) growth for 22 industries in 12 OECD countries over the period 1995-2005. We find a robust positive and significant effect of competition policy as measured by newly created indexes. We provide several arguments and results based on instrumental variables estimators as well as non-linearities to support the claim that the established link can be interpreted in a causal way. At a disaggregated level, the effect on TFP growth is particularly strong for specific aspects of competition policy related to its institutional set up and antitrust activities (rather than merger control). The effect is strengthened by good legal systems, suggesting complementarities between competition policy and the efficiency of law enforcement institutions.
    Keywords: Antitrust; Competition Policy; Deterrence; Institutions; Productivity Growth
    JEL: C23 K21 L4 O4
    Date: 2009–09

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