small firms and the merger mania empirical research has found an average or even superior performance of small firms this seems to be at variance with the secular concentration process and the recurrent merger waves this paper tries to integrate size and merger research higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk premia their faster growth in the eighties was in addition fostered by diversification of demand miniaturization of technology and a need for flexibility under uncertainty the merger wave on the other hand does not necessarily prove that large firms are superior managers and shareholders may be seduced by stockmarket optimism a sizeable industry of banks agents and lawyers have their own interests in mergers mergers may be important in declining markets and for the acquisition of technology on average mergers do not improve efficiency profits or internal growth small and large firms serve different purposes performance depends on the market incentives and technology the establishment growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs

monetary policy under alternative asset market structures the case of a small open economy can the structure of asset markets change the way monetary policy should be conducted following a linear quadratic approach the present paper addresses this question in a new keynesian small open economy framework our results reveal that the configuration of asset markets significantly affects optimal monetary policy and the performance of standard policy rules in particular when comparing complete and incomplete markets the ranking of policy rules is entirely reversed and so are the policy prescriptions regarding the optimal level of exchange rate volatility

the endogenous relationship between innovation and diversification and the impact of technological resources on the form of diversification abstract this research has endeavoured to build on earlier research on the relationship between a firm s technological resources and the direction of its diversification by trying to confirm the endogeneity of this relationship and by addressing the influence of innovation on the choice of the mode of diversification based on a sample of spanish firms our results suggest that innovation drives diversification but not the reverse the second important finding of this research is the empirical confirmation that knowledge assets are not related to the diversification mode

the expenditure switching effect welfare and monetary policy in a small open economy abstract this paper analyses the implications of the expenditure switching effect for the role of the exchange rate in monetary policy in a small open economy it is shown that when the elasticity of substitution between home and foreign goods is not equal to unity welfare depends on the variances of producer prices and the terms of trade producer price targeting is compared to consumer price targeting and a fixed exchange rate it is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is very high

optimal patent breadth and length with costly imitation abstract patent breadth is defined using the number of potential entrants which enter an industry it is shown that optimal patent design may be broad and short lived or narrow and infinitely lived depending on the market structure assumed and the properties of the demand function in the presence of costly imitation and endogenous entry it is shown that optimal patent design may be either broad narrow or of intermediate breadth depending on the properties of the aggregate imitation cost function

asset stock accumulation and sustainability of competitive advantage given incomplete factor markets appropriate time paths of flow variables must be chosen to build required stocks of assets that is critical resources are accumulated rather than acquired in strategic factor markets barney barney j 1986 strategic factor markets expectations luck and business strategy management sci october 1231 1241 sustainability of a firm s asset position hinges on how easily assets can be substituted or imitated imitability is linked to the characteristics of the asset accumulation process time compression diseconomies asset mass efficiencies inter connectedness asset erosion and causal ambiguity

linking corporate strategy to capital structure diversification strategy type and source of financing this study examines the relationship between corporate strategy and capital structure specifically the diversfication and financing strategies of a firm the results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financing additionally firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing using simultaneous equation estimation we found a reciprocal relationship between a firm s financial strategy and its corporate diversification strategy mode and nature of diversification are also reciprocally interrelated 1998 john wiley sons ltd

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

market shares financial constraints and pricing behaviour in the export market a structural dynamic model of price and quantity adjustment is estimated on time series data for exports and export prices two sources of dynamics are considered customer markets and preset prices as predicted by the customer market model the market share adjusts slowly after a change in the relative price and financial conditions affect prices prices are found to be sticky in the sense that they do not reflect the most recent information about costs and exchange rates a parsimoniously parameterized structural model explains about 90 of the variation in market share and the relative price

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

accounting for endogeneity when assessing strategy performance does entry mode choice affect fdi survival firms choose strategies based on their attributes and industry conditions therefore strategy choice is endogenous and self selected empirical models that do not account for this and regress performance measures on strategy choice variables are potentially misspecified and their conclusions incorrect i highlight how self selection on hard to measure or unobservable characteristics can bias strategy performance estimates and recommend an econometric technique that has been developed to account for this effect although this concern applies to a wide range of strategy questions to demonstrate its effect i empirically examine if entry mode choice acquisition versus greenfield influences foreign direct investment survival in specifications that do not account for self selection i find that greenfield entries have survival advantages compared to acquisitions this confirms previous findings however the significance of this effect disappears once i account for self selection of entry mode in the empirical estimates the results confirm that estimates from models that do not account for self selection of strategy choice can lead to incorrect or misleading conclusions

exit with multiplant firms using an extension of ghemawat and nalebuff s 1985 model i analyze the outcome of industry decline when firms have multiplant operations the analysis reveals that no natural generalization of their strong empirical prediction that the larger of two single plant duopolists exits first holds in a multiplant setting the results also highlight a number of factors that affect the pattern of capacity removal during industry decline and lead to a discussion of the strategic implications of firms plant size choices in general the factors determining the pattern of capacity reduction can be quite complex and prediction in such settings often requires intimate knowledge of industry structure

a consistent analysis of diversification decisions with non observable firm effects the empirical analyses of firm diversification decisions both for new activities new products and markets for example new routes for airlines have usually estimated a binary dependent variable model for each of the decisions the firm makes to obtain consistent estimators every relevant effect must be considered in the specification as this will hardly happen the presence of nonobserved firm effects either because such data do not exist or because it is impossible to obtain them must be econometrically treated because it causes inconsistency in the estimations in this paper we propose to use the estimators provided by the maximization of the conditional likelihood function in problems of this kind because they give consistent results even when unobserved firm effects are present finally we apply this technique to an example of diversification among spanish manufacturers 1997 john wiley sons ltd

an advantage of the multiproduct firm the transferability of firm specific capital abstract in a world of uncertainty particular benefits of multiproduct organization arise out of a need to revise production plans when transactions for inputs are costly production involves inputs which are firm specific the ability to transfer firm specific inputs withi n the multiproduct firm yields benefits not available to the single product firm these benefits to firm diversification are not dependent on the assumption of managerial risk aversion and cannot be replicated by investors diversifying their portfolios

diversification strategy and r d intensity in multiproduct firms this study provides empirical evidence that choice of diversification strategy systematically affects r d intensity in large multiproduct firms research and development intensity in dominant busin

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

international financial integration and national price levels the role of the exchange rate regime abstract this paper proposes a new perspective on systematic deviations from purchasing power parity panel evidence for oecd countries shows that international financial integration increases the national price level under managed exchange rate regimes and lowers the price level under floating exchange rates an open economy sticky price model reproduces these findings by relating them to the possibility of insurance against consumption losses in internationally integrated financial markets the utilization of insurance is reflected by relative price adjustments which manifest themselves in changes of the national price level the direction of relative price adjustments however depends on the extent to which insurance is used under different exchange rate regimes under a peg financial integration raises the national price level under a float however financial integration lowers the national price level

optimal monetary policy and the timing of asset trade in open economies this paper analyses the timing of asset trade and its implications for monetary policy and welfare in open economies optimal policy is shown to differ significantly depending on whether asset trade takes place before or after policy decisions are made 2006 elsevier b v all rights reserved

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

foreign money shocks and the welfare performance of alternative monetary policy regimes the welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two country sticky price model money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak but a fixed rate is superior when the expenditure switching effect is strong however price targeting is superior to both these regimes for all values of the expenditure switching effect a welfare maximising monetary rule yields lower output and exchange rate volatility than price targeting for a wide range of parameter values

purposive diversification of r d in manufacturing the r d diversification in manufacturing of large us firms is found to be purposive exploiting complementarities of various research activities and forming groups of related industry categories purposively diversified firms are seen to behave differently than randomly diversified or undiversified firms further the behavioral differences between purposively diversified firms and others result because the former allocate relatively more r d funds to industry categories where appropriability conditions are good and relatively fewer funds to those categories where appropriation of the returns from r d is difficult finally r d expenditure and productivity are more closely linked at the group level than at the industry category level suggesting knowledge spills across industry categories are important

the transaction costs theory of joint ventures an empirical study of japanese subsidiaries in the united states this paper offers the first large sample empirical study of the factors which influence the choice of japanese firms between full or partial ownership of their u s manufacturing subsidiaries it studies for the first time the ownership policies of investors of a single home country in a single host country thus keeping variations within home and host countries constant one methodological improvement over previous studies is the use as independent variables of the relevant characteristics of the investing firms these had been proxied in previous studies by data on u s industries entered the results suggest that the degree of ownership taken by japanese manufacturing investors in their american subsidiaries is driven by the same general transaction costs variables that determine the choices made by their u s counterparts japanese parents joint venture when they need to combine with other firms intermediate inputs which are subject to high market transaction costs an intriguing result however is the lack of significance of two variables which in the u s case strongly push towards full control of foreign subsidiaries in this study neither the japanese parent s r d nor its advertising intensities had any significant impact on their ownership policies

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

greenfield vs acquisition the strategy of japanese investors in the united states multinational firms can enter a foreign market by taking over existing local firms acquisitions or by setting up new ventures greenfield investments surprisingly there has been limited empirical work on this topic this paper examines the determinants of this choice by looking at japanese entries into the united states by focusing on firms of one country entering a single market we are able to separate the impact of a firm s strategy from that of the characteristics of the target industry or country this paper tests simultaneously a number of competing hypotheses the results suggest that acquisitions are used by japanese investors with weak competitive advantages while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the u s acquisitions are also chosen to enter industries with either very high or very low growth rates when entry is at a scale that is large relative to the parent and when entry is into a different industry the japanese investor s previous experience of the u s market its financial situation and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode neither do u s stock market conditions

technological platforms and diversification as the invention of fundamental new sciences spawns subsequent research discovery and commercialization core technologies branch into new applications and markets some of them evolve over time into many derived technologies whereas others are essentially dead ends the pattern of evolution and branching is called a technological trajectory an intriguing question is whether some firms can ride the trajectory by developing proprietary experience in a platform technology because the knowledge is proprietary firms that originate in industrial fields based on a platform technology acquire the technological skills to diversify and to mimic the branching of the underlying technological trajectory the ability to compete in hypercompetitive markets depends on the acquisition of know how that is applicable to a wide set of market opportunities such capabilities serve as platforms into quickly evolving markets to respond rapidly to market changes a firm must have already acquired fundamental compet

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

are tradeoffs inherent in diversification moves a simultaneous model for type of diversification and mode of expansion decisions drawing on the premise that the diversification decisions are driven by antecedent factors such as a firm s existing resources teece 1982 and industry structural conditions this paper develops formal hypotheses for reciprocity between the type of diversification and mode of expansion decisions we consider the specificity of antecedent resources that affect these two decisions and conceptually demonstrate that there is a contradictory tension in trying to optimize the decisions jointly implying that one or both diversification decisions have to be sub optimized i e there has to be a trade off we make a conceptual argument that this sub optimization is likely to be in the form of subordination of the mode decision subject to constraints impo sed by resources that are highly specific to the mode decision following this we empirically investigate this contradictory tension by using a simultaneous equation model sem on a large sample of firms between 1981 and 1989 the results suggest that one antecedent factor internal funds act as the key mediating influence in the joint optimization and leads to a subordination of the mode decision in the joint optimization process however the existence of time compression economies and market power benefits are the exceptions to this subordination and trade off process

asset stock accumulation and the sustainability of competitive advantage reply authors reply to comments regarding their paper dierickx i k cool 1989 asset stock accumulation and the sustainability of competitive advantage management sci

incomplete pass through and the welfare effects of exchange rate variability abstract this paper considers the implications of incomplete exchange rate pass through for optimal monetary and exchange rate policy a two country model is presented which allows an explicit derivation of welfare functions in terms of a weighted sum of the second moments of producer prices and the nominal exchange rate from a single country perspective the optimal exchange rate variance depends on the degree of pass through the size and openness of the economy the elasticity of labour supply and the volatility of foreign producer prices welfare may be decreasing or increasing in the volatility of the exchange rate

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

transmission of nominal exchange rate changes to export prices and trade flows and implications for exchange rate policy we discuss how the welfare ranking of fixed and flexible exchange rate regimes in a new open economy macroeconomics model depends on the interplay between the degree of exchange rate pass through and the elasticity of substitution between home and foreign goods we identify combinations of these two parameters for which flexible and fixed exchange rates are superior with respect to welfare as measured by a representative household s utility level we estimate the two parameters for six non emu european countries czech republic hungary poland slovakia sweden and the uk using a heterogeneous dynamic panel approach

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

comment on small firms and merger mania considering its importance to the field of industrial organization our understanding of the determinants of firm size has some major gaps this becomes quite clear upon reading aiginger and tichy s recent review hereafter a t 1991 of the many empirical studies of firm size they critically examine the separate literatures on the performance of large and small firms and on the efficiency of mergers they find inconsistencies within each of these literatures more interesting they discuss a glaring inconsistency between the evidence in the literature and actual behavior while much of the performance literature indicates that small firms have average or superior performance large firms typically takeover smaller firms efficiency and survival would seem to dictate against this merger mania a t provide a number of interesting insights they offer six hypotheses on why small firms might outperform large firms and challenge the industrial organization view that economies of scale and scope require large firm size they stop short however of arguing that large firms are inefficient recognizing that they may simply perform different roles than small firms their discussion or mergers is more critical of large firms while they do not entirely dismiss the possibility that mergers may yield efficiencies they offer six alternative hypotheses they suggest that mergers tend to r ieci tnance stotiniaierormanagenteili optimism nonprofit maximizing behavior and other unproductive tendencies this comment focuses on the role of firmspecific capital product life cycles and product niches the relative performance of large vs small firms is reconsidered in this light followed by an examination of the merger literature and the practice of takeovers by large firms large firms are viewed less skeptically here than by a t nevertheless the purpose of this note is less to challenge a t than to elaborate on some of their points and suggest additional possibilities the questions raised by a t are central to the field of industrial organization and worthy of further attention