investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

nonlinearities in economic dynamics two reasons that led to the dominance of the linear stochastic difference equations approach the first one was the fact that the nonlinear systems seemed incapable of reproducing the statistical aspects of actual economic time series at best such models were able to produce periodic motion1 and an examination of the spectra of economic time series showed the absence of the spikes that characterise periodic data the emphasis on the equilibrium approach to aggregate economic behaviour cf lucas i 986 would make things even more difficult the plethora of stability results for models of infinitely lived agents with perfect foresight turnpike theorems suggested that even the regular fluctuations that had been derived in the literature on endogenous business cycles were incompatible with a theory that had solid microeconomic foundations further this indicated that while nonlinearities could be present the explanations of the fluctuations had to rest solely on the presence of exogenous shocks that working through the equilibrating mechanism would create the observed randomness if such shocks were absent the system would tend to a stationary state the second reason was the empirical success of the models based on linear stochastic difference equations low order autoregressive processes captured some of the features of aggregate time series in turn these processes can in principle result from an economy with complete markets where production is subject to exogenous shocks though the task of confronting these equilibrium models with actual data has not yielded uncontroversial results see the discussion and references in section i there was no obvious gain in the

sluggish consumers an evolutionary solution to the bertrand paradox we consider an evolutionary model where sellers charge prices for a homogeneous commodity and where consumers while incompletely informed about prices decide from which seller they buy the commodity sellers revise their decisions by way of imitation and experimentation and consumers engage in search consumers are sluggish if they do not learn sellers prices with some positive probability only if consumers are not sluggish at all does economic evolution unambiguously support bertrand equilibrium if consumers are sluggish firms charge other prices as well and the evolutionary process displays a property similar to parallel pricing if consumers are extremely sluggish evolution picks up monopoly pricing journal of economic literature classification numbers c7 d43 d83 l13

the market for quacks a group of n quacks plays a price competition game facing a continuum of patients who recover with probability whether or not they acquire a quack s treatment if patients chose rationally the market would be inactive i assume however that patients choose according to a boundedly rational procedure which re ects anecdotal reasoning this element of bounded rationality has signi cant

sectoral shocks and aggregate fluctuations abstract this paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature aggregate fluctuations are driven by independent sectoral shocks the model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited but locally intense interaction that is characteristic of such input trade flows limited interaction characterized by a sparse intermediate input use matrix reduces substitution possibilities among intermediate inputs which strengthens comovement in sectoral value added and leads to a postponement of the law of large numbers in the variance of aggregate value added the chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations building on horvath 1998 review of economic dynamics 1 781 808 which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model this paper specifies a more general multisector model calibrated to the us 2 digit standard industrial code economy simulations prove the model is able to match empirical reality as closely as standard one sector business cycle models without relying on aggregate shocks

patterns of research productivity in the business ethics literature insights from analyses of bibliometric distributions in any academic discipline published articles in respective journals represent production units of scientific knowledge and bibliometric distributions reflect the patterns in such outputs across authors or producers closely following the analysis approach used for similar studies in the economics and finance literature we present the first study to examine whether there exists an empirical regularity in the bibliometric patterns of research productivity in the business ethics literature our results present strong evidence that there indeed exists a distinct empirical regularity it is the so called generalized lotka s law of scientific productivity pattern the number of authors publishing n papers is about 1 n c of those publishing one paper we discuss the likely processes that underlie the productivity pattern postulated by the generalized lotka s law we find that the value of the exponent c is equal to about 2 6 for the comprehensive bibliometric data across the two leading business ethics journals the observed research productivity pattern in the business ethics area a relatively young discipline is interestingly very consistent with those found in much older related business disciplines like economics accounting and finance we discuss the general implications of our findings

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

the stability of price dispersion under seller and consumer learning in many markets it is possible to find rival sellers charging different prices for the same good earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices we ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions with consumer behavior fixed convergence to a dispersed price equilibrium is possible in some cases however once consumer learning is introduced the monopoly outcome first found by diamond journal of economic theory3 1971 156 68 is the only stable equilibrium

macroeconomics after the crisis time to deal with the pretense of knowledge syndrome the recent financial crisis has damaged the reputation of macroeconomics largely for its inability to predict the impending financial and economic crisis to be honest this inability to predict does not concern me much it is almost tautological that severe crises are essentially unpredictable for otherwise they would not cause such a high degree of distress what does concern me about my discipline is that its current core by which i mainly mean the so called dynamic stochastic general equilibrium approach has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one this is dangerous for both methodological and policy reasons to be fair to our field an enormous amount of work at the intersection of macroeconomics and corporate finance has been chasing many of the issues that played a central role during the current crisis including liquidity evaporation collateral shortages bubbles crises panics fire sales risk shifting contagion and the like however much of this literature belongs to the periphery of macroeconomics rather than to its core i will discuss the distinction between the core and the periphery of macroeconomics as well as the futile nature of the integrationist movement that is the process of gradually bringing the insights of the periphery into the dynamic stochastic general equilibrium structure i argue that the complexity of macroeconomic interactions limits the knowledge we can ever attain and that we need to place this fact at the center of our analysis we should consider what this complexity does to the actions and reactions of the economic agent and seek analytical tools and macroeconomic policies that are robust to the enormous uncertainty to which we are confined

reputation and the allocation of ownership we show that allocation of ownership matters even in a long term relationship where problems of opportunism are less severe unless agents are very patient ownership structure is chosen to give the agents best incentives to cooperate the optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal the worst ownership structure of the one shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest we show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium while when costs are moderately elastic the results of the one shot game apply

perspective from gaussian to paretian thinking causes and implications of power laws in organizations although normal distributions and related current quantitative methods are still relevant for some organizational research the growing ubiquity of power laws signifies that pareto rank frequency distributions fractals and underlying scale free theories are increasingly pervasive and valid characterizations of organizational dynamics when they apply researchers ignoring power law effects risk drawing false conclusions and promulgating useless advice to practitioners this is because what is important to most managers are the extremes they face not the averages we show that power laws are pervasive in the organizational world and present 15 scale free theories that apply to organizations next we discuss research implications embedded in pareto rank frequency distributions and draw statistical and methodological implications

getting there exploring the role of expectations and preproduction delays in processes of organizational founding because of preproduction delays environmental conditions at founding cannot explain organization building decisions taken earlier as a consequence environmental conditions at founding cannot explain organizational founding future levels of resource availability may be estimated but not directly observed by potential entrepreneurs at the time at which they decide to enter preproduction in this paper we take these considerations as our starting point to build a dynamic feedback model of organization founding according to the model organizational founding is driven by expectations that entrepreneurs form about future levels of resources and only indirectly by current levels of population density we explore the behavior of the model under a variety of experimental conditions we show that the qualitative behavior of the model is consistent with studies that have linked the duration of preproduction stage with fluctuations in density during population maturity our simulation analyses sustains three main conclusions first historical trajectories of organizational populations that are consistent with empirical observations may be produced by mechanisms that are not directly dependent on density second alternative hypotheses about how expectations are formed produce qualitatively different historical trajectories of density third fluctuations in numbers of organizations are linked to specific aspects of individual organization building decisions

information gathering transaction costs and the property rights approach the property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives while bargaining is ex post efficient in contrast transaction cost economics emphasizes ex post inefficiencies in the present paper a party may invest and acquire private information about the default payoff that it can realize on its own inefficient rent seeking can overturn prominent implications of the property rights theory in particular ownership by party b may be optimal even though only the indispensable party a makes an investment decision

efficiency out of disorder contested ownership in incomplete contracts in many situations irreconcilable disagreements between players lead to costly ownership disputes over assets for example in case of joint ownership this article studies the role of such disputes in a situation where two players have to make a transaction specific investment and when contracts are incomplete i show that potentially contested ownership may mitigate the inefficiency of investments due to the incompleteness of contracts generating an exchange surplus that comes closer to the first best surplus as compared to any other ex ante distribution of ownership typically discussed in the literature following the influential work by grossman hart and moore if the contest is an all pay auction each player makes a transaction specific investment as if he or she owns the asset this article can explain why shared ownership as for example in equity joint ventures family firms start up partnerships and so on is an important part of today s corporate landscape

market share dynamics in a duopoly model with word of mouth communication abstract we analyze dynamic price competition in a homogeneous goods duopoly where consumers exchange information via word of mouth communication a fraction of consumers who do not learn any new information remain locked in at their previous supplier in each period we analyze markov perfect equilibria in which firms use mixed pricing strategies market share dynamics are driven by the endogenous price dispersion depending on the parameters we obtain different classes of dynamics when firms are impatient there is a tendency towards equal market shares when firms are patient there are extended intervals of market dominance interrupted by sudden changes in the leadership position

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

noncooperative bargaining hostages and optimal asset ownership this paper re examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels it obtains some results which contradict findings by sanford j grossman oliver d hart and john moore in particular it finds that the loss of ownership of an asset may increase the asset loser s investment incentive the difference between this paper and those authors papers stems from the different interpretations of the roles of the threat point and outside options in bargaining this paper also clarifies the role of relationship specific investments as a cause of integration copyright 1998 by american economic association

the reductionist gamble open economy politics in the global economy international political economy ipe should transition to third wave scholarship because open economy politics oep which dominates current american ipe scholarship can generate inaccurate knowledge oep can produce inaccurate knowledge because it studies domestic politics in isolation from international or macro processes this methodological reductionism is often inappropriate for the phenomena ipe studies because governments inhabit a complex social system as a result the political choices that oep strives to explain are typically a product of the interplay between domestic politics and macro processes when oep omits causally significant macro processes from empirical models the models yield biased inferences about the domestic political relationships under investigation although scholars tolerated such errors when the gains from oep were large these errors are less tolerable now that oep has matured consequently the field should transition toward research that is nonreductionist problem driven and pluralistic

investment spillovers and the allocation of property rights abstract in the context of the property rights theory of the firm we study the role of investment spillovers in shaping the efficiency ranking of ownership regimes in our model spillovers arise from asset embodied investment and footloose investment under the former the benefits of investment can be appropriated only through asset control under the latter the benefits of investment can be appropriated independently of asset control our model predicts that asset embodied investment favors the adoption of non integration while joint ownership may prevail in the presence of footloose investment

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

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

consumer search with observational learning this article studies observational learning in a consumer search environment consumers observe the purchasing decision of a predecessor with similar preferences consumers rationally emulate by initiating their search at the firm from which their predecessor purchased free riding on search effort and reacting less to price changes prices are nonmonotone in search costs and may be as low as marginal costs we discuss several extensions and show that the effect of emulation on prices is stronger when i the number of firms increases ii consumers first visits are more elastic with respect to market shares and iii prices are adjusted more frequently

corporate entrepreneurship strategy extending the integrative framework through the lens of complexity science whereas our understanding of corporate entrepreneurship ce and corporate entrepreneurship strategy ces continues to expand there has been little theoretical development to support the most extensive framework to date the integrative model of ces as proposed by ireland et al entrep theory pract 33 1 19 46 2009 according to the model ces is built upon the three foundational elements of an entrepreneurial strategic vision a pro entrepreneurship organizational architecture and entrepreneurial processes and behaviors as exhibited throughout the organization ireland et al 2009 p 38 the purpose of this study is to present a broad overarching theory complexity science to examine the key elements and propositions of the ces model complexity science founded on assumptions of interdependent heterogeneous agents and nonlinear interactions as well as non deterministic and potentially extreme outcomes offers established multi level concepts theoretical boundary conditions and methodological guidance for scholars to build and test future studies on ce and ces though our complexity perspective draws extensively from conceptual work on complex adaptive systems and agent based models we ground our arguments on the empirical ubiquity of power law distributions in all constructs and levels of analysis within the ces model we conclude with a detailed research agenda as well as a prescriptive discussion related to theory development quantitative analysis and practical applications to guide future studies on ce

self organized criticality and economic fluctuations economists have long been interested in explaining the observed instability of economic aggregates though several reasons for variation in the pace of production are easily given such as exogenous variation in tastes or in production possibilities it is hard to see why there should be large variations in those factors that are synchronized across the entire economy instead it seems more likely to suppose that variations in demand or in production costs in different parts of the economy should be largely independent and hence that a law of large numbers would imply that significant variations in aggregate activity relative to the typical size of aggregate activity are not likely to occur an alternative approach proposes that economies possess intrinsically unstable dynamics which even in the absence of external shocks would result in persistent deterministic fluctuations this type of model implies however that aggregate fluctuations should involve motion on a low dimensional attractor while analysis of economic time series has not revealed structure of this kind another alternative proposes that the economy possesses multiple equilibria and that it can therefore switch between equilibria for arbitrary reasons this possibility suffers however from the difficulty that one must explain how people succeed in coordinating their expectations about the times at which a shift should occur here we explore another type of explanation which relies on an entirely different mechanism our proposal is that the effects of many small independent shocks to different sectors of the economy need not cancel out in the aggregate due to the presence of significantly nonlinear strongly localized interactions between different parts of the economy the type of macroscopic instability that can result has been studied by condensed matter physicists under the name of self organized criticality per bak and kan chen 1991 physicists have noted in several contexts the possibility of a critical state in which independent microscopic fluctuations can propagate so as to give rise to instability on a macroscopic scale this is a state in which chain reactions initiated by local disturbances neither damp out over a short distance the subcritical case nor propagate explosively so that the system cannot remain in that state the supercritical case as in the controlled nuclear fission that allows a reactor to generate power without exploding often this has seemed to depend upon parameters being carefully tuned to exactly their critical values in the case of a reactor an elaborate control mechanism is required to keep it near criticality more recently it has been argued that some systems may spontaneously evolve toward a critical state and return to it even if perturbed by an external shock the prototypical example of such selforganized criticality is a sandpile when the slope of the pile is nowhere too steep dropping on additional grains of sand at randomly chosen sites has no macroscopic effects as at most small numbers of grains will shift position in each case however randomly dropping on additional sand will eventually result in the slope of the pile increasing to a critical slope at which point large avalanches can occur in response to the dropping of a single additional grain of sand a sandpile with a slope that is initially greater than the critical slope also evolves toward it in this case through an immediate department of economics university of chicago 1126 east 59th st chicago il 60637 we thank per bak buz brock boyan jovanovic and paul krugman for discussions and the santa fe institute and the nsf for research support 1scheinkman 1990 surveys empirical work on this

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

the ineffectiveness of entrepreneurship policy is policy formulation to blame entrepreneurship policy has been criticised for its lack of effectiveness some scholars such as scott shane in this journal have argued that it is bad public policy but this simply begs the question why the legislative process should generate bad policy to answer this question this study examines the uk s enterprise policy process in the 2009 2010 period it suggests that a key factor for the ineffectiveness of policy is how it is formulated this stage in the policy process is seldom visible to those outside of government departments and has been largely ignored by prior research the application of institutional theory provides a detailed theoretical understanding of the actors and the process by which enterprise policy is formulated we find that by opening up the black box of enterprise policy formulation the process is dominated by powerful actors who govern the process with their interests

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

the free trade epidemic of the 1860s and other outbreaks of economic discrimination why was there an abrupt increase in economic openness in europe in the 1860s this increase may have been the result of a contagion process in which the cobden chevalier treaty between britain and france threatened to displace third party exports to fra nce with british exports as a result most european states signed similar treaties with france which had further ripple effects this article outlines a formal model of this process based on the assumption that an agreement between two states incre ases the desirability of similar treaties to third parties propositions regarding the rate and pattern of spread of treaties are derived from this model this article then discusses the insights these propositions may offer into the rise and fall of the most favored nation network of treaties between 1860 and 1929 at a theoretical level the model aims to link the microlevel processes underlying state preferences to system level phenomena at a substantive level this analysis offers insight into the current explosion of regionalism

a foundation for markov equilibria in sequential games with finite social memory we study stochastic games with an infinite horizon and sequential moves played by an arbitrary number of players we assume that social memory is finite every player except possibly one is finitely lived and cannot observe events that are sufficiently far back in the past this class of games includes games between a long run player and a sequence of short run players and games with overlapping generations of players an equilibrium is purifiable if some close by behaviour is consistent with equilibrium when agents payoffs in each period are perturbed additively and independently we show that only markov equilibria are purifiable when social memory is finite thus if a game has at most one long run player all purifiable equilibria are markov

stochastic cascades credit contagion and large portfolio losses abstract we analyze an interactive model of credit ratings where external shocks spread by a contagious chain reaction to the entire economy counterparty relationships along with discrete adjustments of credit ratings generate a transition mechanism that allows the financial distress of one firm to spill over to its business partners the spread of financial distress constitutes a source of intrinsic risk for large portfolios of credit sensitive securities that cannot be diversified away we provide a characterization of the fluctuations of credit ratings in large economies when adjustments follow a threshold rule and analyze the effects of downgrading cascades on credit portfolios

word of mouth communication and social learning this paper studies the way that word of mouth communication aggregates the information of individual agents we find that the structure of the communication process determines whether all agents end up making identical choices with less communication making this conformity more likely despite the players naive decision rules and the stochastic decision environment word of mouth communication may lead all players to adopt the action that is on average superior these socially efficient outcomes tend to occur when each agent samples only a few others i introduction economic agents must often make decisions without knowing the costs and benefits of the possible choices given the frequency with which such situations arise it is understandable that agents often choose not to perform studies or experiments but instead rely on whatever information they have obtained via casual word of mouth communication reliance on this sort of easily obtained information appears to be common in circumstances ranging from consumers choosing restaurants or auto mechanics to business managers evaluating alternative organizational structures this paper studies two related environments in arguing that individuals reliance on word of mouth communication has interesting implications for their aggregate behavior first motivated by the diffusion of new technologies we consider a choice between two competing products with unequal qualities or payoffs and show that the structure of communication is important in determining whether the population as a whole is likely to learn to use the superior product second we consider a choice between two products or practices that are equally good and ask whether consumers are likely to herd onto a single choice or whether diversity will obtain even in the long run we explore the implications of word of mouth communication in a simple nonstrategic environment there is a large population of identical players each of whom repeatedly chooses between two possible actions each player s payoff is determined by his own

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

a formal analysis of knowledge combination in multinational enterprises this paper outlines a model of process organisation for the combination of different types of knowledge from spatially separated sources in the multinational enterprise the model envisages an initiator entrepreneur as the motor of the process and identifies regularities in the types of knowledge combination within the firm that provide additional value knowledge losses decision losses and coordination losses are imperfections in the process and result in barriers to the effective combination of knowledge strategies of combination are of three types additive sequential and complex implying different types of control outcomes

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

beyond gaussian averages redirecting international business and management research toward extreme events and power laws practicing managers live in a world of extremes but international business and management research is based on gaussian statistics that rule out such extremes on occasion positive feedback processes among interactive data points cause extreme events characterized by power laws they seem ubiquitous we list 80 kinds of them half each among natural and social phenomena we use imposed tension and per bak s self organized criticality to argue that pareto based science and statistics based on interdependence positive feedback scalability nearly infinite variance and emphasizing extremes should parallel the traditional dominance of gaussian statistics based on independent data points finite variance and emphasizing averages we question quantitative journal publications depending on gaussian statistics the cost is inaccurate science and irrelevance to practitioners in conclusion no statistical findings should be accepted into business studies if they gain significance via some assumption device by which extreme events and nearly infinite variance are ignored accordingly we suggest redirecting international business studies and management research in general

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

an evolutionary approach to understanding international business activity the co evolution of mnes and the institutional environment this paper examines the co evolution of mne activities and institutions external and internal to the firm we develop a theoretical framework for this analysis that draws on the more recent writings of douglass north on institutions as a response to complex forms of uncertainty associated with the rise in global economic interconnectedness and of richard nelson on the co evolution of technology and institutions we link historical changes in the character of mne activities to changes in the institutional environment and highlight the scope for firm level creativity and institutional entrepreneurship that may lead to co evolution with the environment we argue that the main drivers for institutional entrepreneurship are now found in the increasing autonomy of mne subsidiaries thus mne agency derives from more decentralized forms of experimentation in international corporate networks which competence creating nodes of new initiatives can co evolve with local institutions unlike most other streams of related literature our approach connects patterns of institutional change in wider business systems with more micro processes of variety generation and experimentation within and across individual firms this form of co evolutionary analysis is increasingly important to understanding the interrelationships between mne activities and public policy

legitimating first organizing activities and the survival of new ventures abstract the process by which firm founders create new organizations is of considerable interest to evolutionary theorists and entrepreneurship researchers this article tracks the life histories of 223 swedish new ventures started between january and september 1998 by a random sample of firm founders we explore the effect of legitimating activities on the hazard of disbanding and the transition to other firm organizing activities during their first 30 months of life we find that undertaking activities to generate legitimacy reduces the hazard of venture disbanding and facilitates the transition to other organizing activities

panel studies of new venture creation a methods focused review and suggestions for future research longitudinal panel studies of large random samples of business start ups captured at the pre operational stage allow researchers to address core issues for entrepreneurship research namely the processes of creation of new business ventures as well as their antecedents and outcomes here we perform a methods orientated review of all 83 journal articles that have used this type of data set our purpose being to assist users of current data sets as well as designers of new projects in making the best use of this innovative research approach our review reveals a number of methods issues that are largely particular to this type of research we conclude that amidst exemplary contributions much of the reviewed research has not adequately managed these methods challenges nor has it made use of the full potential of this new research approach specifically we identify and suggest remedies for context specific and interrelated methods challenges relating to sample definition choice of level of analysis operationalization and conceptualization use of longitudinal data and dealing with various types of problematic heterogeneity in addition we note that future research can make further strides towards full utilization of the advantages of the research approach through better matching from either direction between theories and the phenomena captured in the data and by addressing some under explored research questions for which the approach may be particularly fruitful

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

thinking about the firm a review of daniel spulber s the theory of the firm in this review i describe how economists have moved beyond the firm as a black box to incorporate incentives internal organization and firm boundaries i then turn to the way that the theory of the firm is treated in daniel spulber s book the theory of the firm microeconomics with endogenous entrepreneurs firms markets and organizations spulber s goal is to explain why firms exist how they are established and what they contribute to the economy to accomplish this spulber defines a firm to be a transaction institution whose objectives differ from those of its owners for spulber this separation is the key difference between the firm and direct exchange between consumers i raise questions about whether this is a useful basis for a theory of the firm jel d21

threshold models of interpersonal effects in consumer demand abstract whether one buys may be determined in part by how many others have when the correlation is positive we refer to bandwagon effects and when negative reverse bandwagons we construct demand schedules in the presence of such effects and with simple assumptions about supply investigate the existence of and approach to equilibrium stable price quantity equilibria exist but for many plausible parameter values equilibria are asymptotically unstable and system trajectories consist of cycles that can move with slight parameter changes via successive bifurcations into what has been called chaotic dynamics essentially indistinguishable from random noise these conditions occur despite assumptions of erfect information profit maximizing firms and utility maximizing individuals

aggregation and irrelevance in multi sector models abstract this paper studies the ability of input output relationships to generate fluctuations in aggregate output in several multi sector models including that of long and plosser 1983 in these models the manufacture of each sector s output depends on other sectors for materials these interconnections provide a mechanism for transmission of shocks across sectors and over time we ask how aggregates from these multi sector models behave relative to single sector models we provide conditions under which the second moment properties of aggregates in these models are the same as their single sector counterparts we further demonstrate that a broad class of input output structures generate aggregates with identical second moment properties and that the input output structures in this class provide a poor amplification mechanism for sector shocks

why market shares matter an information based theory consider a duopoly market in which consumers have heterogeneous information about the quality differential q of the two goods when firms are ignorant about q consumers rationally believe that a firm with high market shares is likely to produce a high quality good as a result firms try to signal jam the inferences of consumers and compete for market shares beyond the level explained by short run profit maximization when firms know q multiple equilibria may exist but there is always one equilibrium in which market shares signal quality and then the market tends to be more competitive

chains of cooperation threshold effects in collective action granovetter s threshold model of collective action shows how each new participant triggers others until the chain reaction reaches a gap in the distribution of thresholds hence outcomes depend on the network of social ties that channel the chain reactions however structural analysis is encumbered by the assumption that thresholds derive from changing marginal returns on investments in public goods a learning theoretic specification imposes less stringent assumptions about the rationality of the actors and is much better suited to a structural analysis computer simulations suggest that threshold effects may be the key to solving the coordination problem when individual choices are contingent on participation by others this interdependence facilitates the coordination of contributions needed to shift the bistable system from a noncooperative equilibrium to a cooperative one further simulations with low density networks show that these chain reactions require bridges that link socially distant actors supporting granovetter s case for the strength of weak ties

power law distributions in entrepreneurship implications for theory and research a long held assumption in entrepreneurship research is that normal i e gaussian distributions characterize variables of interest for both theory and practice we challenge this assumption by examining more than 12 000 nascent young and hyper growth firms results reveal that variables which play central roles in resource cognition action and environment based entrepreneurship theories exhibit highly skewed power law distributions where a few outliers account for a disproportionate amount of the distribution s total output our results call for the development of new theory to explain and predict the mechanisms that generate these distributions and the outliers therein we offer a research agenda including a description of non traditional methodological approaches to answer this call

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

dynamic price competition with network effects i consider a dynamic model of competition between two proprietary networks consumers die and are replaced with a constant hazard rate and firms compete for new consumers to join their network by offering network entry prices i derive a series of results pertaining to a existence and uniqueness of symmetric equilibria b monotonicity of the pricing function e g larger networks set higher prices c network size dynamics increasing dominance vs reversion to the mean and d firm value how it varies with network effects finally i apply my general framework to the study of termination charges in wireless telecommunications i consider various forms of regulation and examine their impact on firm profits and market share dynamics

prescriptions for network strategy does evidence of network effects in cross section support them although intuitively appealing and common drawing network strategy implications from empirical evidence of network performance effects in pooled cross section is not necessarily warranted this is because network positions can influence both the mean and variance of firm performance strategic prescriptions are warranted if empirically observed network effects reflect increases in mean firm performance if network effects reflect increases in firm performance variance however such prescriptions are warranted only if the increase in the odds of achieving high performance is sufficient to compensate for the concomitant increase in the odds of realizing poor performance our simulation study designed to examine network performance effects in both pooled cross section and within firm over time across a wide range of conditions counsels caution in drawing implications for network strategies we discuss the implications of our findings for research on network effects and more broadly for drawing strategic inferences from studies of firm performance in pooled cross section

market share dynamics and the persistence of leadership debate this paper introduces a novel analysis of the classic persistence of leadership question and applies it to a newly constructed dataset for japanese manufacturing the analysis rests on an appeal to an empirical scaling relationship between current market share and the variance of changes in market share this relationship provides a powerful model selection criterion for candidate models of market share dynamics it also makes it feasible even in small datasets to test directly for the properties of the first passage times corresponding to loss of leadership

an essay on the origins of entrepreneurial opportunity in this article we apply a process of logical inference to draw conclusions about the origins of entrepreneurial opportunity from existing conversations in the field of strategic management we equate the execution of a competitive strategy as described in the strategic management literature to the exploitation of an entrepreneurial opportunity as described in the entrepreneurship literature given this assumption we survey five extant theories of strategy in an attempt to categorize and describe the circumstances that define how and with what consequence entrepreneurial opportunity exploitation results in future opportunity given this review we characterize the outcomes of strategy execution as a function of the match between strategy and environment in an effort to extend and refine holcombe s holcombe randall 2003 review of austrian economics16 1 25 43 position that entrepreneurial opportunity is born of prior entrepreneurial action let your hook always be cast in the pool where you least expect it there will be a fish ovid a d 17

regaining the edge for international business research the key to international business is that it approaches empirical phenomena at a variety of levels of analysis using a variety of theoretical frameworks the most important levels of analysis are the individual manager the firm the industry and the environment in each category there is vast heterogeneity figure 2 1 illustrates this interaction between issues and theories it has levels of analysis on the vertical axis and the basic social sciences on the horizontal axis as systems of thinking about the phenomena it would also be possible to replace fundamental disciplines by the primary management disciplines marketing finance strategy etc

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

which ties matter when the contingent effects of interorganizational partnerships on ipo success this paper investigates the contingent value of interorganizational relationships at the time of a young firm s initial public offering ipo we compare the signaling value to young firms of having ties with two types of interorganizational partnerships endorsement relationships such as those with venture capital firms and investment banks and strategic alliance partnerships we propose that under different equity market conditions potential investors in an issuing firm attend to different types of uncertainty attention to these different types of uncertainty affects investors perceptions of the relative value of a young firm s different kinds of endorsements and partnerships and hence ipo success results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to ipo success during cold markets while ties to prominent investment banks are particularly beneficial to ipo success during hot markets a firm s strategic alliances with major pharmaceutical health care firms did not have such contingent effects implications for understanding the contingent value of interorganizational ties are discussed copyright 2003 john wiley sons ltd

research methods in international business the challenge of complexity international business ib research is designed to explore and explain the inherent complexity of international business which arises from the multiplicity of entities multiplexity of interactions and dynamism of the global economic system to analyze this complexity ib scholars have developed four research lenses difference distance diversity and disparity these four lenses on complexity have created not only unique research opportunities for ib scholarship but also unique research methodological challenges we therefore view complexity as the underlying cause of the unique methodological challenges facing international business research we offer several recommendations to help ib scholars embrace this complexity and conduct reliable interesting and practically relevant research

initial human and financial capital as predictors of new venture performance abstract this research seeks to predict the performance of new ventures based on factors that can be observed at the time of start up indicators of initial human and financial capital are considered to determine how they bear upon the probability of three possible performance outcomes 1 failure 2 marginal survival or 3 high growth four categories of initial human and financial capital are examined general human capital represented here by the entrepreneur s education gender and race may reflect the extent to which the entrepreneur has had the opportunity to develop relevant skills and contacts management know how embodied in the entrepreneur or available through advisors or partners reflects management specific skills and knowledge without regard to the kind of business industry specific know how reflects specific experience in similar businesses financial capital is one of the most visible resources it can create a buffer against random shocks and allow the pursuit of more capital intensive strategies which are better protected from imitation the study utilizes a longitudinal study of 1053 new ventures representative of all industry sectors and geographical regions the research departs from most previous studies in considering different measures of performance marginal survival and growth and in considering explicitly whether the factors contributing to marginal survival differ from those contributing to high growth it was found that measures of general human capital influenced both survival and growth except for gender with women owned ventures being less likely to grow but just as likely to survive management know how variables had more limited impact having parents who had owned a business contributed to marginal survival but not to growth number of partners contributed to growth but not to survival management level prior employment in non profit organizations or not having been in the labor force and the use of professional advisors did not have significant effects industry specific know how contributed to both survival and growth amount of initial financial capital also contributed to both the usefulness of the model is enhanced by the fact that the resource variables considered are relatively easy to assess and all can be considered at the time of start up although some of the human capital variables cannot easily be changed the benefits or risks associated with each can be assessed in some cases potential problems can be identified so that plans can be modified to improve prospects overall it appears that using a model based upon the initial human and financial capital of the venture it is possible to predict the performance of new ventures with some degree of confidence

self organized criticality in a dynamic game we investigate conditions under which self organized criticality soc arises in a version of a dynamic entry game in the simplest version of the game there is a single location a pool and one agent is exogenously dropped into the pool every period payoffs to entrants are positive as long as the number of agents in the pool is below a critical level if an agent chooses to exit he cannot re enter resulting in a future payoff of zero agents in the pool decide simultaneously each period whether to stay in or not we characterize the symmetric mixed strategy equilibrium of the resulting dynamic game we then introduce local interactions between agents that occupy neighboring pools and demonstrate that under our payoff structure local interaction effects are necessary and sufficient for soc and for an associated power law to emerge thus we provide an explicit game theoretic model of the mechanism through which soc can arise in a social context with forward looking agents

scaling the volatility of gdp growth rates abstract the distribution of shocks to gdp growth rates is found to be exponential rather than normal their standard deviation scales with gdp where 0 15 0 03 these macroeconomic results place restrictions on the microeconomic structure of interactions between agents

investments in physical capital relationship specificity and the property rights approach abstract we reconsider the property rights approach to the theory of the firm based on incomplete contracts we explore the implications of different degrees of relationship specificity when there are two parties a and b who can make investments in physical capital instead of human capital if relationship specificity is exogenously given it turns out that joint asset ownership can be optimal only if the degree of relationship specificity is sufficiently small if relationship specificity can be freely chosen and if party a s investments are more productive then the parties deliberately choose a strictly positive level of relationship specificity and they always agree on sole ownership by party a

cascading failures in production networks i show how the extensive margin of firm entry and exit can greatly amplify idiosyncratic shocks in an economy with a production network i show that canonical input output models which lack the extensive margin of firm entry and exit have some crucial limitations in these models the systemic importance of a firm does not respond to productivity shocks depends only on the firm s role as a supplier and is equal to or well approximated by the firm s size this means that for every canonical input output model there exists a non interconnected model that has the same aggregate response to productivity shocks i show that when we allow for entry and exit the systemic importance of a firm responds endogenously to productivity shocks depends on a firm s role not just as a supplier but also as a consumer and a firm s systemic influence is no longer well approximated by its size furthermore i show that nondivisibilities in systemically important industries can cause one failure to snowball into a large scale avalanche of failures in this sense shocks can be amplified as they travel through the network whereas in canonical input output models they cannot

the dynamic instability of dispersed price equilibria abstract we adopt an evolutionary framework to explain price dispersion as a time varying phenomenon by developing a finite strategy analogue of the burdett and judd 1983 price dispersion model we show that all dispersed price equilibria are unstable under the class of perturbed best response dynamics instead numerical simulations using the logit dynamic show that price dispersion manifests itself as a limit cycle we verify that limit cycles persist even when the finite strategy model approaches the original continuous strategy model for a particularly simple case of the model we prove the existence of a limit cycle

a look into the nature of complex systems and beyond stonehenge economics coping with complexity or ignoring it in applied economics real world economic systems are complex in general but can be approximated by the open systems approach economic systems are very likely to possess the basic and advanced emergent properties e g self organized criticality fractals attractors of general complex systems t he theory of self organized criticality is proposed as a major source of dynamic equilibria and complexity in economic systems this is exemplified in an analysis for self organized criticality of danish agricultural subsectors indicated by power law distributions of the monetary production value for the time period from 1963 to 1999 major conclusions from the empirical part are 1 the sectors under investigation are obviously self organizing and thus very likely to show a range of complex properties 2 the characteristics of the power law distributions that were measured might contain further information about the state or graduation of self organization in the sector varying empirical results for different agricultural sectors turned out to be consistent with the theory of self organized criticality 3 fully self organizing sectors might be economically the most efficient finally empirical implications of the results are discussed complexity theory should be considered as a valuable supplement to the existing analytical toolbox jel classification b52

is bigger better customer base expansion through word of mouth reputation a model of gradual reputation formation through a process of continuous investment in product quality is developed we assume that the ability to produce high quality products requires continuous investment and that as a consequence of informational frictions such as search costs information about firms past performance diffuses only gradually in the market this leads to a dual process of growth of a firm s customer base and an increase in the firm s investment in quality the model predicts therefore that the longer its tenure as a high quality producer the more a firm invests in quality we relate this finding to empirical work on online commerce as well as on traditional industries

on the informational role of quantities durable goods and consumers word of mouth communication a dynamic incomplete information game is set up to study the introduction of a durable good when consumers can learn its quality from previous buyers high sales today imply fewer potential buyers tomorrow but each buyer will have better information about the good consumers are fully rational and can update their beliefs even when they do not directly receive information in equilibrium no news is bad news a low quality firm follows a fly by night strategy randomizing over the timing of sales a high quality firm spreads out its sales more smoothly solving a stochastic dynamic programming problem copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

asset specificity and behavioral uncertainty as moderators of the sales growth employment growth relationship in emerging ventures sales growth and employment growth are the two most widely used growth indicators for new ventures yet sales growth and employment growth are not interchangeable measures of new venture growth rather they are related but somewhat independent constructs that respond differently to a variety of criteria most of the literature treats this as a methodological technicality however sales growth with or without accompanying employment growth has very different implications for managers and policy makers a better understanding of what drives these different growth metrics has the potential to lead to better decision making to improve that understanding we apply transaction cost economics reasoning to predict when sales growth will be or will not be accompanied by employment growth our results indicate that our predictions are borne out consistently in resource constrained contexts but not in resource munificent contexts