nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2016‒04‒16
twenty-two papers chosen by
João José de Matos Ferreira
Universidade da Beira Interior

  1. Capitale umano, innovazione tecnologica e divari economici nell’era post-knowledge? Un’analisi econometrica a livello sub nazionale By Lima, Rita
  2. The Impact of Innovation in the Multinational Firm By L. Kamran Bilir; Eduardo Morales
  3. Complementarities in organizational innovation practices: evidence from French industrial firms Complementarities in organizational innovation practices: evidence from French industrial firms By Caroline Mothe; Thu Nguyen Nguyen Thi; Phu Nguyen-Van
  4. Localization of Collaborations in Knowledge Creation By Inoue, Hiroyasu; Nakajima, Kentaro; Saito, Yukiko Umeno
  5. How mergers affect innovation: Theory and evidence from the pharmaceutical industry By Haucap, Justus; Stiebale, Joel
  6. Innovation Strategies Combining Internal and External Knowledge By Johansson, Börje; Lööf, Hans
  7. Innovation and Performance of Enterprises: The Case of SMEs in Vietnam By Vu, Hoang Nam; Doan, Quang Hung
  8. To What Extent the Adoption of Innovative Human Resource Practices Is Explained by Top Management Support in Chinese SMEs By Yiyang Sun; Foteini Kravariti
  9. Rethinking Deindustrialization By Andrew B. Bernard; Valerie Smeets; Frederic Warzynski
  10. The Role of Information Technology in Enabling Open Innovation: Complementarity or Substitutability? By Reza Ghaffari; Benoit A. Aubert
  11. Organisational mergers: a behavioural perspective on identity management By Giessner, S.R.
  12. Does the Type of Neighbor Matter?: Evidence of heterogeneous Export Spillovers on Domestic Companies in Mexico By Cardoso-Vargas, Carlos-Enrique
  13. Export-Led Innovation Among European Firms. Demand and Technological Learning Effects By Fassio, Claudio
  14. Gender Diversity in Senior Positions and Firm Performance; Evidence from Europe By Lone Engbo Christiansen; Huidan Lin; Joana Pereira; Petia Topalova; Rima Turk
  15. SMALL BUSINESS MANAGEMENT IN RELATIONSHIPS OF MICRO AND MACRO ENVIRONMENT By Anna Wiśniewska-Sałek; Joanna Nowakowska-Grunt; Anna Brzozowska; Robert Sałek
  16. Learning from crisis: a systematic literature review By Jan Brzozowski; Marco Cucculelli
  17. Human Capital and Innovation in a Monetary Schumpeterian Growth Model By Angus C., Chu; Lei, Ning; Dongming, Zhu
  18. A Comparison of Different Window Models for Measuring Technical Efficiency By Rashidghalam, Masoomeh; Heshmati, Almas
  19. Ethical responsibilities of R&D organizations: networking business and society By Olga Dziubaniuk
  20. La difícil medición del concepto de competitividad.¿Qué factores que afectan a la competitividad regional? By Tomás Mancha Navarro; Fabio Moscoso; Juan Luis Santos
  21. Strategic Choice of Network Externality By Yuanzhu Lu; Sougata Poddar
  22. Corporate social responsibility in a competitive business environment By Carol Newman; John Rand; Finn Tarp; Neda Trifkovi.

  1. By: Lima, Rita
    Abstract: During the last forty years there was a broad consensus in the academic literature that human capital is an important determinant of productivity and other economic outcomes, both at the individual and at the aggregate level, and that its role was particularly crucial to reduce regional growth disparities. Nowadays, although the production and use of human capital is at the core of value-added activities, innovation is at the core of firms’ and nations’ strategies for economic growth in a new “post-knowledge” era. Bearing this evidence in mind and using recent GMM-SYS panel data procedures, this paper presents a dynamic specification for the period 1970-2009 in which we used as dependent variable a proxy of Italian cross-country disparities in economic performance (such as the gap in the annual percentage growth rate of GDP between Italian regions and Germany, the innovation leader country) and indicator of innovation activity (such as the ratio of public and private R&D expenditure to gross fixed investments) and human capital (such as the ratio of people graduated in science and technology subjects to active people aged 25-64) as predetermined and endogenous variables. The results reveal that the well known North-South duality in terms of human capital differentials is always important spillover in defining regional competitiveness and economic growth, but in a world where information is ubiquitous and knowledge is increasingly shared, those regions located in an economic periphery that experience lower returns to skill attainment and hence have reduced incentives for human capital investments and agglomerations (like Sicily) have to look for new sources of advantage (such as R&D) to gain a competitive edge.
    Keywords: Capitale Umano, R&S, Modello di regressione pooled, Stimatore GMM-SYS
    JEL: C1 C18 I25 O11 O30
    Date: 2016–04–06
  2. By: L. Kamran Bilir; Eduardo Morales
    Abstract: When firms operate production plants in multiple countries, technological improvements developed in one country may be shared with firm sites abroad for efficiency gain. We develop a dynamic model that allows for such intrafirm transfer, and apply it to measure the impact of innovation on performance for a panel of U.S. multinationals. Our estimates indicate U.S. parent R&D raises performance significantly at firm locations abroad, and also complements R&D by affiliates. Parent R&D is a substantially more important determinant of firm performance than affiliate R&D. We identify these R&D effects using variation in location-specific innovation policies.
    JEL: F00 F23 O30
    Date: 2016–04
  3. By: Caroline Mothe (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Thu Nguyen Nguyen Thi (CEPS/INSTEAD - Centre d'Etudes de Populations, de Pauvreté et de Politiques Socio-Economiques / International Networks for Studies in Technology, Environment, Alternatives, Development - Centre d'Etudes de Populations, de Pauvreté et de Politiques Socio-Economiques / International Networks for Studies in Technology, Environment, Alternatives, Development); Phu Nguyen-Van (BETA - Bureau d'Economie Théorique et Appliquée - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Organizational innovation favours technological innovation. Yet the question of which organizational practices should be combined—that is, their compatibility—remains unanswered. This empirical investigation of patterns of complementarity considers three organizational practices: business practices, workplace organization, and external relations. Firm-level data drawn from the 2008 French Community Innovation Survey and supermodularity tests confirm the crucial role of organizational innovation in increasing firms’ innovation. The pattern of complementarity among organizational practices differs according to the type of innovation (i.e., product or process), as well as the type of measure used to assess technological innovation performance. These results highlight the complexity of managing organizational practices to encourage firm innovation.
    Keywords: Complementarity, Organizational innovation, Supermodularity, Technological innovation
    Date: 2015
  4. By: Inoue, Hiroyasu; Nakajima, Kentaro; Saito, Yukiko Umeno
    Abstract: This study investigates the localization of collaboration in knowledge creation by using the data on Japanese patent applications. Applying distance-based methods, we obtained the following results. First, collaborations are significantly localized at the 5% level with a localization range of approximately 100 km. Second, the localization of collaboration is observed in most technologies. Third, the extent of localization was stable from 1986–2005 despite extensive developments in information and communications technology that facilitate communication between remote organizations. Fourth, the extent of localization is substantially greater in inter-firm collaborations than in intra-firm collaborations. Furthermore, in inter-firm collaborations, the extent of localization is greater in collaborations with small firms. This result suggests that geographic proximity mitigates the firm-border effects in collaborations, especially for small firms.
    Keywords: Knowledge creation, Collaboration, Geographic frictions, Firm-border effects
    JEL: R12 O31
    Date: 2016–03
  5. By: Haucap, Justus; Stiebale, Joel
    Abstract: This papers analyses how horizontal mergers affect innovation activities of the merged entity and its non-merging competitors. We develop an oligopoly model with heterogeneous firms to derive empirically testable implications. Our model predicts that a merger is more likely to be profitable in an innovation intensive industry. For a high degree of firm heterogeneity, a merger reduces innovation of both the merged entity and non-merging competitors in an industry with high R&D intensity. Using data on horizontal mergers among pharmaceutical firms in Europe, we find that our empirical results are consistent with many predictions of the theoretical model. Our main result is that after a merger, patenting and R&D of the merged entity and its non-merging rivals declines substantially. The effects are concentrated in markets with high innovation intensity and a high degree of firm heterogeneity. The results are robust towards alternative specifications, using an instrumental variable strategy, and applying a propensity score matching estimator.
    Keywords: mergers & acquisitions,innovation,R&D incentives,merger policy
    JEL: D22 L13 L4 G34 O31
    Date: 2016
  6. By: Johansson, Börje (Jönköping International Business School (JIBS), Centre of Excellence for Science and Innovation Studies (CESIS) & Royal Institute of Technology (KTH)); Lööf, Hans (Centre of Excellence for Science and Innovation Studies (CESIS) & Royal Institute of Technology (KTH))
    Abstract: We introduce a framework for analyzing renewal efforts of firms with distinct categories of innovation and adoption strategies, comprising a firm’s development off its internal knowledge, its access to local knowledge sources and its access to global knowledge sources. A fundamentall aspect is the formation and maintenance of the firm’s renewal capabilities. In this way the analysis provide an explanation of remaining heterogeneity among firms belonging to the same industry such that one group performs above average for long sequences of time, whereas others continue to pperform below average. The analysis applies Swedish data when presenting alternative approaches to provide empirical support in favour of the outlined model of how long-run firm performance associates with each firm’s sustained efforts to combine interal and external knowledge sources.
    Keywords: Adoption; Innovation; Innovation outcome; Knowledge sources and networks; Combined internal and external knowledge
    JEL: F21 O30 O31 R11
    Date: 2016–04–06
  7. By: Vu, Hoang Nam; Doan, Quang Hung
    Abstract: Innovation is widely recognized as a key determinant of enterprise performance. It is, however, not clear how innovation affects performance of small-and-medium enterprises (SMEs) in transition economies. Based on data collected from surveys of SMEs in Vietnam from 2005 to 2011 this study shows that the human capital of owners/managers of SMEs, the quality of workers, and public physical infrastructure positively affect innovation and the performance of SMEs. More importantly, the study finds that innovation in products, production process, and marketing is a decisive factor for higher performance of SMEs in Vietnam.
    Keywords: Innovation, SMEs, Vietnam
    JEL: D22 J54 L11 L25 O3
    Date: 2015–01
  8. By: Yiyang Sun (The University of Manchester); Foteini Kravariti (The University of Manchester)
    Abstract: This study focuses on innovative human resource practices (HRPs) in SMEs. It investigates whether top management support influences the decision to adopt HRPs and the degree of their implementation under the umbrella of management innovation. A quantitative data analysis is utilised in order to explore this topic among 185 SMEs in China by testing research hypotheses stemming from existing literature conclusions. The results demonstrate that there is a positive relationship between top management support and key innovative HRPs. Additionally, top management support significantly contributes to the adoption of extensive training and development followed by pay based on performance appraisal, job security and sophisticated selection. Given that all research hypotheses are statistically confirmed, we conclude that top management support can be an influential factor with regard to the adoption of innovative HRPs in SMEs. Hence, we suggest that the management innovation perspective as a theoretical underpinning is beneficial in determining motivational factors which shape the types of innovative HRPs adopted, and thus have a potential impact on organizational performance.
    Keywords: HRM, innovative HRPs, management innovation, top management support, SMEs, Chinese SMEs
  9. By: Andrew B. Bernard; Valerie Smeets; Frederic Warzynski
    Abstract: Manufacturing in high-income countries is on the decline and Denmark is no exception. Manufacturing employment and the number of firms have been shrinking as a share of the total and in absolute levels. This paper uses a rich linked employer-employee dataset to examine this decline from 1994 to 2007. We propose a different approach to analyze deindustrialization and generate a series of novel stylized facts about the evolution. While most of the decline can be attributed to firm exit and reduced employment at surviving manufacturers, we document that a non-negligible portion is due to firms switching industries, from manufacturing to services. We focus on this last group of firms before, during, and after their sector switch. Overall this is a group of small, highly productive, import intensive firms that grow rapidly in terms of value-added and sales after they switch. By 2007, employment at these former manufacturers equals 8.7 percent of manufacturing employment, accounting for half the decline in manufacturing employment. We focus on the composition of the workforce as firms make their transition. In addition, we identify two types of switchers: one group resembles traditional wholesalers and another group that retains and expands their R&D and technical capabilities. Our findings emphasize that the focus on employment at manufacturing firms overstates the loss in manufacturing-related capabilities that are actually retained in many firms that switch industries.
    Keywords: manufacturing firms, industry switching, employment, skill composition, firm performance, job separation
    JEL: D22 L25
    Date: 2016–04
  10. By: Reza Ghaffari; Benoit A. Aubert
    Abstract: This paper conceptualizes the role (complementarity or substitutability) of a set of IT-enabled capabilities in effectively facilitating inbound open innovation - the strategy to open up the organization’s internal innovation process to external ideas and partners. These IT-enabled capabilities have been argued to contribute significantly to innovation in organizations.
    Keywords: Innovation, Open innovation, Information Technology, IT capabilities,
    Date: 2016–04–08
  11. By: Giessner, S.R.
    Abstract: Organisational mergers are one of the most extreme forms of organisational change processes. Consequently, they often result in difficulties for employees to adjust to the altered organisational conditions. This is often reflected in low levels of employee identification with the post-merger organisation. As a result, merging organisations experience more conflict, less employee motivation, higher turnover and lower performance levels. These low levels of post-merger identification thus often put the strategic and financial goals of the merger at risk. I argue that an organisational behaviour perspective focusing on the management of identity levels during an organisational merger provides important practical insights for employee management. I will first explain why I am personally so fascinated by this topic. I will then present an identity management perspective on organisational mergers. Here, I will consider three key aspects: (1) Identity processes; (2) Intergroup structure; and (3) Leadership. I will conclude by giving an overview of the potential challenges and directions for future research in this field.
    Keywords: mergers, acquisitions, esprit de corps, identity management, post-merger identification, social identity, human resource management, employee adjustment, uncertainty
    JEL: G34 L22 M12 M14
    Date: 2016–04–01
  12. By: Cardoso-Vargas, Carlos-Enrique
    Abstract: This document examines whether the agglomeration of foreign processing firms (PCS) assembling imported inputs to make export products favors the incorporation to the export activity or market expansion of domestic companies. Similarly this situation is evaluated by considering ordinary foreign firms (ORD) or not manufactured processed products and non-local hybrid companies (HBR) that act in both regimes of commerce. The theoretical framework guiding the empirical evaluation is based on a simple model inspired by Melitz (2003), which is evaluated by means of a conditional logit model with panel data. The findings show evidence that the concentration of these types of foreign companies increases the probability that domestic companies show a presence in certain markets. Notwithstanding, these export spillovers widely heterogeneous in virtue of the fact that their existence and sphere of influence are associated with their specificity in terms of country or product, as well as with the regime of commerce and the technological capacity used by domestic companies vis-à-vis neighboring foreign companies.
    Keywords: international trade, agglomeration externalities, heterogeneity firms
    JEL: F13 F14 F21
    Date: 2016–02–27
  13. By: Fassio, Claudio (LUISS School of European Political Economy)
    Abstract: This paper investigates the effect of exporting activities on the innovation strategies of European firms in France, Germany, Italy, Spain and UK. The paper puts forward the hypothesis that such a positive effect is driven two main mechanisms. The first is a technological learning effect that allows firms active in international markets to benefit from foreign knowledge spillovers in technologically advanced markets and decrease their research cost for the development of innovations. The second is a demand effect induced by fast-growing foreign markets that increase the potential output of firms. The empirical analysis, which addresses important endogeneity issues related with the strategic choice of the markets of destination operated by firms, shows that the two effects induce the adoption of different innovation strategies. While the technological learning effect positively affect the decision of firms to introduce brand new product innovations, the demand effect fosters the adoption of efficiency and imitation strategies. The paper shows that the effect of exporting activity on innovation strategies crucially depends on the type of export destinations. The lower levels of the technological learning effect which is found among the export destinations of Italian and Spanish firms might represent a possible obstacle for the ability of these countries to increase their future innovative capacities.
    Keywords: Exports; Innovation strategies; European Union economics
    JEL: F10 O33 P51
    Date: 2015–03–05
  14. By: Lone Engbo Christiansen; Huidan Lin; Joana Pereira; Petia Topalova; Rima Turk
    Abstract: This paper examines the link between gender diversity in senior corporate positions and financial performance of 2 million companies in Europe. We document a positive association between corporate return on assets and the share of women in senior positions and establish two potential channels through which gender diversity may affect firm performance. The positive correlation is more pronounced in, first, sectors where women form a larger share of the labor force (such as the services sector) and, second, where complementarities in skills and critical thinking are in high demand (such as high-tech and knowledge-intensive sectors).
    Keywords: Euro Area;Gender diversity, senior management, firm performance, gender, women, female intensity, labor force, productivity, General, Economics of Gender, Public Policy, Personnel Economics: General,
    Date: 2016–03–07
  15. By: Anna Wiśniewska-Sałek (Czestochowa University of Technology, Faculty of Management); Joanna Nowakowska-Grunt (Czestochowa University of Technology, Faculty of Management); Anna Brzozowska (Czestochowa University of Technology, Faculty of Management); Robert Sałek (Czestochowa University of Technology, Faculty of Management)
    Abstract: Building the economy of a country and its competitive strength on international markets constitutes the determinant of the economic power of globalization. Countries, wishing to take an active part in creating this power must exert impact on their economy in terms of innovation, entrepreneurship and flexibility of management of their business. However, building the economy of the country begins from the bottom, therefore, from the local – regional industry. In Poland, this industry consists in the enterprises of the SME sector, where there predominate small companies that do not have the financial potential e.g. for the development being the result of using modern technologies. The State (the policy run by the authorities) and aid programs of the European Union have a significant share in the development of such companies. However, the progress in business greatly depends on the enterprise itself and, particularly, the strategy selected as the leading one. The paper is an attempt to select factors both from the micro and macro environment. Degree of dependence and impact of these factors on each other/ the company represents valuable information for those managing small businesses. It may constitute the first step towards the decision in what direction the enterprise will develop or if it will be able to satisfy the requirements set e.g. by the external environment.
    Keywords: small business, business environment, management
    JEL: M21 Q56
  16. By: Jan Brzozowski (Università Politecnica delle Marche, MoFiR); Marco Cucculelli (Università Politecnica delle Marche, MoFiR)
    Abstract: The recent economic crisis has revived the interest on the reactions to the recession pursued by the entrepreneurs. Understanding how to act in troubled times becomes an asset which is vital for the firm survival, and to the future competitive advantage after the economic recovery. This papers reviews the state of the art on the firms. reaction to economic crisis and on the firms. ability to learn from previous events. The study aims at identifying the main trends and findings in this research field. Based on the Scopus and Web of Science indexes, the systematic review of the literature is carried out on the sample of 38 papers, by investigating the objectives, geographical coverage, methodologies and results. Consequently, most important gaps in knowledge on the learning from crisis research have been identified and most promising topics are described.
    Keywords: organizational learning; crisis; economic recession
    JEL: D83 L22 L25
    Date: 2016–04
  17. By: Angus C., Chu; Lei, Ning; Dongming, Zhu
    Abstract: This study explores the growth and welfare effects of monetary policy in a scale-invariant Schumpeterian growth model with endogenous human capital accumulation. We model money demand via a cash-in-advance (CIA) constraint on R&D investment. Our results can be summarized as follows. We find that an increase in the nominal interest rate leads to a decrease in R&D and human capital investment, which in turn reduces the long-run growth rates of technology and output. This result stands in stark contrast to the case of exogenous human capital accumulation in which the long-run growth rates of technology and output are independent of the nominal interest rate. Simulating the transitional dynamics, we find that the additional long-run growth effect under endogenous human capital accumulation amplifies the welfare effect of monetary policy. Decreasing the nominal interest rate from 10% to 0% leads to a welfare gain that is equivalent to a permanent increase in consumption of 2.82% (2.38%) under endogenous (exogenous) human capital accumulation.
    Keywords: monetary policy, economic growth, R&D, human capital
    JEL: E41 O3 O4
    Date: 2016–03
  18. By: Rashidghalam, Masoomeh (Department of Agricultural Economics, University of Tabriz, Tabriz, Iran); Heshmati, Almas (Jönköping International Business School (JIBS), Centre of Excellence for Science and Innovation Studies (CESIS),& Department of Economics, Sogang University, Seoul, South Korea)
    Abstract: This study analyzes the technical efficiency of Iran's 13 major cotton producing provinces over the period 2000-2012. To assess technical efficiency over time we use several non-parametric versions of the Window methodology. These include Window-DEA, Window-FDH, Window order- and Window order-m models. In a Window’s analysis one uses moving average patterns as a provincial observation in each period treated as if it is a different observation leading to a higher number of observations. The aim is to shed light on temporal patterns and heterogeneity in efficiency, time dependency and sensitivity of the results attributed to different efficiency measurement methodologies that are applied using the same dataset. It then invokes four consistency conditions to examine these scores and rankings. According to our results the models Window-FDH, Window order- and Window order-m are consistent. We were able to identify the most (least) efficient provinces and follow temporal patterns of their performance in the production of cotton. The findings reveal that provinces with larger scales of production are not necessarily more efficient. The results also indicate that although there are differences in the levels of efficiency across the models used, efficiency rankings from various models tend to support similar conclusions about the relative performance of the sample provinces.
    Keywords: Non-parametric; technical efficiency; Window-DEA; Window-FDH; Window order-alpha; Window order-m; consistency conditions
    JEL: C44 D24 D51 Q12
    Date: 2016–04–06
  19. By: Olga Dziubaniuk (Åbo Akademi University)
    Abstract: This empirical research contributes to the understanding of how actions of networking companies are going beyond their networks picture and impact on society. For the structural analysis of this phenomenon the concept of ethical embeddedness is applied which assumes that business organizations are embedded in a broader social network and have mutual interconnection of their functions. The research proposes that embeddedness of businesses may be exemplified via ethicality of responsibilities that specific business actors employ. Therefore, the research adopts Industrial network approach to investigate ethical embeddedness of business organizations in society and their impact on its current and future development. The “social face†of industrial markets has being extensively discussed in the works of K. Polanyi (e.g. 1968) who collaborated on the concept of social embeddedness of the economic interaction. Granovetter (1985) has developed this idea even further by emphasizing that companies interact in social environment and the social networking is not dividable form the business networks. The concept of ethical embeddedness is adopted for this study (Lindfelt & Törnroos, 2006) which can be explained as ethical values in relations to economic values that are created in a particular business network.Empirically, this framed as a case-study research is grounded on the interviewed representatives of R&D organizations engaged in medical devices R&D activities. They excellently exemplify ethical considerations of embedded ethical responsibilities toward society as their general aim along profit achievement is to improve social welfare. Additionally, those organizations are highly dependent on the network of business partners, governmental and other institutional actors which make them perfectly suitable for this research. The research question of this study is articulated as the following: how embedded ethicality of businesses impact on interconnection between society and business organizations? In general, conceptually, this research paper contributes to the development of the concept of ethical embeddedness and to Industrial network approach theory. From the practical perspective, it aims to illustrate the attractiveness of investment in development technologies that are able to improve social welfare; the ethical value embedded in business activities and its impact on society and business partnership. Current interest to the ethical issues requires filling a research gap in lacking empirical evidences of ethical and, consequently, socially significant managerial practices executed in business networks that influence on general public good.
    Keywords: Business ethics, social responsibility, business networks, industrial marketing, ethical embeddedness
    JEL: L14 O32 M14
  20. By: Tomás Mancha Navarro; Fabio Moscoso; Juan Luis Santos
    Abstract: El término de competitividad es claro, pero su medición a nivel regional o nacional es difícil y no hay una metodología clara para llegar a evaluarla de manera unívoca. Sin embargo la mejora de la competitividad es una de las prioridades más importantes en política económica. Por ello es indispensable conocer los factores que afectan a la competitividad partiendo de aproximaciones previas, entre las que destacan las de Camagni, Porter y Sala-i-Martín. A partir de estos y otros intentos previos de conceptualizar la competitividad se describen los tres entornos de la misma: entorno productivo, capital humano y entorno capital público. El primero de ellos se divide en siete componentes y los otros dos en cuatro cada uno de ellos. A su vez los quince pilares cuentan con una serie de indicadores y variables que permiten la medición del concepto de competitividad a nivel regional.
    Keywords: competitividad, economía regional, índice de competitividad.
    Date: 2016–04
  21. By: Yuanzhu Lu (China Economics and Management Academy, Central University of Finance and Economics, Beijing, China); Sougata Poddar (Department of Economics, Faculty of Business and Law, Auckland University of Technology)
    Abstract: In many product markets, impact of network externality plays an important role to affect the overall quality of a product. However, the degree or the strength of network externality is assumed as a parameter in most of the literature. We propose a model of vertical product differentiation with two competing firms where the strength of network externality is endogenized as a strategic choice of the high quality firm. We show how the equilibrium market structure and market coverage depend on the cost of choosing the network strength and on the relative quality difference of the competing products. We also show that the relationship between the optimal level of network externalities and the relative quality differences of the products can be monotonic or non-monotonic.
    Keywords: Vertical product differentiation, Network externality, Market structure, Market coverage, Investment cost
    Date: 2015–03
  22. By: Carol Newman; John Rand; Finn Tarp; Neda Trifkovi.
    Keywords: poverty measurement, utility consistency, cost of basic needs
    Date: 2016

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