cost allocation revisited an optimality result the resource manager of a firm is faced with capacity and pricing decisions with regard to a congestion prone system such as computer communication facilities difficulties arise since the manager is uninformed of the system demand when the capacity decision is to be made a game theoretic model is developed to analyze the effects of different accounting rules on the elicitation of relevant information and ex post efficiency in acquisition and allocation decisions the key result is that the cost allocation method aided by an anonymous reporting scheme is indeed as asserted by zimmerman zimmerman j 1979 the costs and benefits of cost allocations accounting rev 54 july 504 521 a full information efficient rule achieving optimality both in acquisition and allocation decisions discussions of the main assumptions underlying this result are provided

direct estimation of synergy a new approach to the diversity performance debate this study examines the linkages between relatedness and synergy in the context of diversification among u s pharmaceutical firms for the period 1960 1980 rather than assume as in the entropy herfindahl and concentric indices of diversification that the levels of synergy generated by different related combinations of business units are identical we estimate synergy directly using a modified version of the concentric index in addition to estimating synergy using capital market performance of the firm as a whole we examine the effects of nondrug diversification on the innovative productivity of firms pharmaceutical divisions alone our two main findings are that production relatedness such as that between drugs and chemicals in fact did not imply synergy over the period of our study and that the patterns of synergy for different types of relatedness shifted over time with the industry life cycle

the firm as an epistemic community the knowledge based view revisited based on a social constructivist conceptualization of knowledge as residing in groups of practitioners epistemic communities this paper proposes a new perspective on the knowledge based view of the firm and sketches the outline of a new research agenda it argues that the cost of governing knowledge processes depends as much on the cognitive background of the exchange partners as on the tacitness of the knowledge firms exist because they may form epistemic communities in their own right with enabling and motivational properties superior to those of markets in the governance of knowledge processes across epistemic boundaries establishing a firm as an epistemic community requires transaction specific investments that are difficult to realize under market forms of governance

on the price of anarchy in a single server queue with heterogeneous service valuations induced by travel costs abstract this work presents a strategic observable model where customer heterogeneity is induced by the customers locations and travel costs the arrival of customers with distances less than x is assumed to be poisson with rate equal to the integral from 0 to x of a nonnegative intensity function h in a loss system m g 1 1 we define the threshold nash equilibrium strategy xe and the socially optimal threshold strategy x we investigate the dependence of the price of anarchy poa on the parameter xe and the intensity function for example if the potential arrival rate is bounded then poa is bounded and converges to 1 when xe goes to infinity on the other hand if the potential arrival rate is unbounded we prove that x xe always goes to 0 when xe goes to infinity and yet in some cases poa is bounded and even converges to 1 if h converges to a positive constant then poa converges to 2 if h increases then the limit of poa is at least 2 whereas if h decreases then poa is bounded and the limit of poa is at most 2 in a system with a queue we prove that poa may be unbounded already in the simplest case of uniform arrival

cost externalities and corporate diversification abstract this paper examines the optimal time of entry by established firms that strategically exploit cost externalities resulting from experience transfer from their core product line to the entered market established firms may delay entry even under conditions when newborn firms would enter early the paper can also explain other entry scenarios including early diversification at an initial loss into markets that newborn firms would never enter the shape of the experience curve in the entered market strongly affects these differences in scenarios

internal pricing and cost allocation in a model of multiproduct competition with finite capacity increments internal prices are used in practice to allocate central resources to a firms profit centers the fixed costs of capacity acquisitions are often included in these prices we examine the interaction between capacity acquisition and competition when capacity is available in fixed increments we find predictably that if the increments are small unit capacity cost is a good approximation for the internal price and if the increments are large the internal price is zero however the relationship between the internal price and the capacity increment for intermediate cases is quite irregular to the extent that it is not possible to approximate the internal price with accounting data the analysis also suggests that full cost allocation overcharges for the opportunity cost of capacity furthermore the right internal price does not act either as a way of recovering fixed costs or as a proxy for externalities such as congestion costs the conclusions are not materially altered in the case where variable costs increase at the margin and where these costs rather than hard capacity constraints are the reason to restrict output

diversifying entry some ex ante explanations for postentry survival and growth links between theoretically determined preentry conditions and the postentry performance of diversifying entries made by large industrial firms are examined industry firm and relatedness variabl

understanding corporate coherence theory and evidence abstract multiproduct firms are perceived to be coherent in their scope yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory this paper shows that as u s manufacturing firms grow more diverse they maintain a constant level of coherence between neighboring activities this finding runs counter to the idea that firms with many activities are generally more incoherent a framework is then presented which appeals to the nature of enterprise learning path dependencies and the nature of the selection environment to explain the ubiquity of coherent diversifiers

sources of superior performance market share versus industry effects in the u s brewing industry using financial measures of performance we investigate the sources of value creation in the u s brewing industry between 1969 and 1979 we find that market share gains in this industry at this time are not correlated with changes in value and that the performance of individual leading firms is highly correlated our interpretation is that the success of market share building strategies depends critically on specific industry conditions specifically in the absence of fundamental shifts in the relative resource positions of individual firms share gains may come at too high a price in addition the research shows that intra industry correlations in returns may result from excessive competition rather than collusion

configuration of value chain activities the effect of pre entry capabilities transaction hazards and industry evolution on decisions to internalize we integrate insights from organizational capabilities organizational economics and industry evolution to examine industry entrants boundary choices about value chain activities and test hypotheses in 1978 2009 data from a sample of u s bioethanol producers we find support for our predictions that transaction hazards decomposed as either enduring or transient over the stages of industry evolution are positively associated with the choice to internalize value chain activities pre entry experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice importantly we also distinguish between firm and founder level pre entry capabilities that is the capabilities of firms versus those of founders diversifying entrants with firm level integrative capabilities are more likely to internalize value chain activities than start ups and this effect persists over the industry s life cycle the relationship between pre entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants findings improve understanding of the relationships among capability development boundary choice and industry evolution

applying and advancing internalization theory the multinational enterprise in the twenty first century internalization theory has provided a resilient analytical framework that explicitly or implicitly underlines much of international business scholarship internalization theory is not a monolithic body of knowledge instead it has devolved into several streams each of which focuses on the interests of particular epistemic communities while also acting as a more generic organizing framework for those more broadly interested in its application to real world challenges following a review of the various streams we trace the frontiers of current research of the broader internalization framework and identify emerging themes raised by the papers in the special issue these include transaction cost considerations in the bundling and recombination of assets across diverse contexts the growing relevance of quasi internalization the theoretical challenges of bounded rationality for internalization theory and the increasing disconnect between ownership control and responsibility these developments point to new research frontiers for scholars looking to apply or advance internalization theory

information technology effects on firm performance as measured by tobin s q despite increasing anecdotal evidence that information technology it assets contribute to firm performance and future growth potential of firms the empirical results relating it investments to firm performance measures have been equivocal however the bulk of the studies have relied exclusively on accounting based measures of firm performance which largely tend to ignore it s contribution to performance dimensions such as strategic flexibility and intangible value in this paper we use tobin s q a financial market based measure of firm performance and examine the association between it investments and firm q values after controlling for a variety of industry factors and firm specific variables the results based on data from 1988 1993 indicate that in all of the five years the inclusion of the it expenditure variable in the model increased the variance explained in q significantly the results also showed that for all five years it investments had a significantly positive association with tobin s q value our results are consistent with the notion that it contributes to a firm s future performance potential which a forward looking measure such as the q is better able to capture

impact of information technology capital on firm scope and performance the role of asset characteristics this research draws on transaction cost and resource based theory to examine how information technology it capital moderates the relationship between different types of assets and firm scope both vertical integration and diversification the analysis suggests that it capital enables firms with narrowly valuable assets to be less vertically integrated and less diversified and enables firms with broadly valuable assets to be more vertically integrated and more diversified the moderating influence of it capital on the relationship between different types of assets and firms vertical and product market scope is consistent with transaction cost as well as resource based traditions abstract from author

competitive dynamics and economic learning an extended resource based view in this paper a conceptual framework for the analysis of economic learning is developed economic learning by analogy with organizational learning results in the development of economic competences or capabilities shared between firms which rest on a foundation of economic resources from which value is generated and economic routines through which resources are utilized it is the mobility of resources and their exchange and production dynamics along evolutionary pathways which underpins the plausibility of a notion of economic learning the paper elaborates this framework as a resource based view rbv of the economy as a whole as an extension of the rbv of the firm such a framework captures the dynamics of exchange and circulation of technologies know how and intangible assets as well as of tangible assets and capital goods it is concerned with investment behavior by entrepreneurs rather than with the behavior of producers and consumers in goods and services markets within this resource economy framework it is possible to generate an account of the resource dynamics that underpin production of goods and services including resource propagation diffusion imitation replication and recombination these processes encompass evolutionary pressures experienced through resource variation selection and retention entrepreneurial initiatives take the form of resource recombinations while resource innovation captures the creation of new economic resources such as technological standards such a perspective brings into focus the resource specialization and configurations that drive real economies within firms and between firms that translates into enhanced or diminished performance of the economy as a whole copyright 2003 oxford university press

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

contracting theory and accounting abstract this paper reviews agency theory and its application to accounting issues i discuss the formulation of models of incentive problems caused by moral hazard and adverse selection problems i review theoretical research on the role of performance measures in compensation contracts and i compare how information is aggregated for compensation purposes versus valuation purposes i also review the literature on communication including models where the revelation principle does not apply so that nontruthful reporting and earnings management can take place the paper also discusses capital allocation within firms including transfer pricing and cost allocation problems

sunk costs uncertainty and market exit a real options perspective in this article we examine whether the option value of keeping an operation alive will deter firms from exiting an industry we find that uncertainty dissuades firms from exiting an industry but only when the sunk costs of entering and exiting that industry are sizeable moreover we argue and find that sunk costs can be influenced by the technological intensity of an industry by the extent to which a firm competes on the basis of innovation and by the firm s diversification strategy copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

delay cost and incentive schemes for multiple users this paper examines the role of cost application in the presence of delay and agency costs two risk neutral division managers share a common production facility and decide on a the demand usage rates and b productive action each division manager causes costly delays at the common production facility for the other division manager the expected delay depends on the demand rates chosen by the division managers an m g 1 queuing framework is used to characterize delay costs the unobservability of demand rates leads to stochastic choice hazard and the unobservability of productive actions leads to moral hazard problems the headquarters designs incentive schemes such that the use of the common facility is optimal for the firm we show that a franchise contract is necessary to implement the first best solution similar to harris and raviv 1979 but is not sufficient specifically when the action aversion of one division manager is small the use of a franchise contract leads to greedy behaviour by the that division manager the cost application required is greater than the expected marginal cost of delay to preclude the greedy behavior and ensure a stable equilibrium

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

do esg controversies matter for firm value evidence from international data the aim of this paper is to investigate the relationship between environmental social and governance esg controversies and firm market value we use a unique dataset of more than 4000 firms from 58 countries during 2002 2011 primary analysis surprisingly shows that esg controversies are associated with greater firm value however when interacted with the corporate social performance csp score esg controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive building on this evidence we attempt to explore the channels through which csp may enhance market value conducting sample split analysis indicates that higher csp score has an impact on market value only for high attention firms those firms which are larger perform better located in countries with greater press freedom more searched on the internet more followed by analysts and have an improved corporate social reputation thus our findings provide new insights on the role of firm visibility through which firms can profit from their csp

game theoretic methods in general equilibrium analysis list of figures list of authors introduction j f mertens a the core and the bargaining set i general equilibrium and cooperative games basic results e allen s sorin ii core convergence in perfectly competitive economies r m anderson iii economies with atoms j f mertens iv bargaining sets r vohra b the value v the shapley value r j aumann vi value of games with a continuum of players a neyman vii the tu value the non differentiable case j f mertens addendum the shapley value of a perfectly competitive market may not exist f lefevre viii the harsanyi value s hart ix value equivalence theorems the tu and ntu cases s hart x economic applications of the shapley value r j aumann c the cooperative approach to large markets and games xi an axiomatic approach to the equivalence phenomenon p dubey a neyman xii large games and economies with effective small groups m h wooders d the non cooperative approach xiii strategic market games a survey of some results p dubey xiv from nash to walras equilibrium e allen h polemarchakis xv correlated and communication equilibria j f mertens xvi notes on correlated equilibrium and sunspot equilibrium j peck xvii implementation with plain conversation s sorin

the wacc fallacy the real effects of using a unique discount rate in this paper we test whether firms properly adjust for risk in their capital budgeting decisions if managers use a single discount rate within firms we expect that conglomerates underinvest overinvest in relatively safe risky divisions we measure division relative risk as the difference between the division s asset beta and a firm wide beta we establish a robust and significant positive relationship between division level investment and division relative risk next we measure the value loss due to this behavior in the context of acquisitions when the bidder s beta is lower than that of the target announcement returns are significantly lower

cost based transfer pricing under r d risk aversion in an integrated supply chain abstract this paper examines the economic role of transfer pricing for a vertically integrated supply chain when a risk averse production division manager faces uncertainty on the outcomes from r d investment in particular we compare two representative cost based transfer pricing methods full cost and variable cost pricing we construct an economic model based on the assumption that r d investment reduces the expected fixed costs of a production factor as well as the variable production costs we show that a firm s profit under full cost transfer pricing is greater than that under variable cost transfer pricing under certainty contrary to this benchmark result variable cost pricing becomes more profitable than full cost pricing when the risk averse manager bears relatively high risk

customer satisfaction productivity and profitability differences between goods and services there is widespread belief that firms should pursue superiority in both customer satisfaction and productivity however there is reason to believe these two goals are not always compatible if a firm improves productivity by downsizing it may achieve an increase in productivity in the short term but future profitability may be threatened if customer satisfaction is highly dependent on the efforts of personnel if so there are potential tradeoffs between customer satisfaction and productivity for industries as diverse as airlines banking education hotels and restaurants managers in these types of service industries as well as goods industries in which the service component is increasing need to understand whether or not this is the case for example if efforts to improve productivity can actually harm customer satisfaction and vice versa the downsizing of u s and european companies should be viewed with concern it follows that developing a better understanding of how customer satisfaction and productivity relate to one another is of substantial and growing importance especially in light of expected continued growth in services throughout the world economy the objective of this paper is to investigate whether there are conditions under which there are tradeoffs between customer satisfaction and productivity a review of the literature reveals two conflicting viewpoints one school of thought argues that customer satisfaction and productivity are compatible as improvements in customer satisfaction can decrease the time andeffort devoted to handling returns rework warranties and complaint management while at the same time lowering the cost of making future transactions the second argues that increasing customer satisfaction should increase costs as doing so often requires efforts to improve product attributes or overall product design a conceptual framework useful in resolving these contradictory viewpoints is developed the framework serves in turn as a basis for developing a theoretical model relating customer satisfaction and productivity the model predicts that customer satisfaction and productivity are less likely to be compatible when 1 customer satisfaction is relatively more dependent on customization the degree to which the firm s offering is customized to meet heterogeneous customers needs as opposed to standardization the degree to which the firm s offering is reliable standardized and free from deficiencies and 2 when it is difficult costly to provide high levels of both customization and standardization simultaneously to move forward from the model s propositions to the development of testable hypotheses we argue that services are more likely than goods to have the preceding characteristics hence tradeoffs between customer satisfaction and productivity should be more prevalent for services than for goods although this classification is not precise many services are standardizable and many goods have a service component it has the advantage of allowing an initial test of the propositions the empirical work employs a database matching customer based measures of firm performance with traditional measures of business performance such as productivity and return on investment roi the central feature of this database is the set of customer satisfaction indices provided by the swedish customer satisfaction barometer scsb the scsb provides a uniform set of comparable customer based firm performance measures and offers a unique opportunity to test the study s hypotheses the findings indicate that the association between changes in customer satisfaction and changes in productivity is positive for goods but negative for services in addition while both customer satisfaction and productivity are positively associated with roi for goods and services the interaction between the two is positive for goods but significantly less so for services taken together the findings suggest support for the contention that tradeoffs are more likely for services hence simultaneous attempts to increase both customer satisfaction and productivity are likely to be more challenging in such industries of course this does not imply that such firms should not seek improvements in both productivity and customer satisfaction for example appropriate applications of information technology may improve both customer satisfaction and productivity simultaneously the findings should provide motivation for future research concerning the nature of customer satisfaction and productivity as well as appropriate strategy and tactics for each one it is worth emphasizing that this is an issue that is not only important today but certainly will become even more important in the future as the growth of services continues and world markets become increasingly competitive the importance of customer satisfaction will also increase to compete in such a world firms must strike the right balance between their efforts to compete efficiently and their efforts to compete effectively

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

product line expansion and resource cannibalization abstract diversification research argues that new products are more successful when they leverage a firm s intangible resources which may support multiple activities without engendering rivalry for their use however numerous complementary resources may also be needed to exploit a firm s intangibles if these resources are in limited supply or if it takes time to acquire and assimilate additional resource capacity then new products may impose costs on existing products by cannibalizing the services of firm resources our analysis of product introductions within the pharmaceutical industry provides evidence of resource cannibalization and suggests that product market experience helps offset some of these costs

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

the costs of related diversification the impact of the core business on the productivity of related segments i develop the thesis that in related diversified firms the core business in my analysis the largest business may provide benefits such as scope economies to a related segment but it may also exert power and constrain the segment to act in its interests in various internal and external transactions this enables the core business to shift productivity gains toward itself from the segment which could lead to various inefficiencies within the related diversified firm using input output flow data and a multilevel model with the segment as the unit of analysis i first show that a segment s productivity is lower compared with a single business firm when it shares backward and forward complementarity i e when it shares transactions with common suppliers and customers with the core business correspondingly i show that as a mirror image the core business s productivity is enhanced when the business shares backward and forward complementarity with segments and when segments are backward integrated with it i e when the core business provides outputs to segments these shifts in productivity and the attendant inefficiencies do not seem to be destroying the entire value from related diversification overall the findings support the argument that the power and influence exerted by the core business and concomitantly the subsidization of the core business by related segments is an important source of costs borne by segments in a related diversified firm

a theory of market structure with sequential entry this article sets out a theory of market structure with sequential entry we characterize the perfect nash equilibrium to the entry game in several propositions first equilibria never involve excess capacity second a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically i e with no further entry third the equilibrium number of firms is the smallest number that can deter entry fourth aggregate output in equilibrium is no smaller than the limit output we calculate some explicit solutions to the model and examine comparative static properties

capital rationing and organizational slack in capital budgeting this paper reconciles three stylized facts about capital budgeting in firms and shows that they are tied to the presence of asymmetric information among the several members of the firm each with his or her own objectives and decisions the facts of interest are 1 the existence of organizational slack 2 the rationing of resources within organizations 3 the stated cut off rate for accepting capital projects in firms is often greater than the market rate of interest organizational slack is defined as the excess of resources allocated over the minimum necessary to accomplish the tasks assigned resource rationing is defined as the under allocation of resources i e an increase in the amount allocated would generate revenues in excess of its costs rationing and slack are both manifestations of ex post inefficiencies an lp model is used to show that these inefficiencies can occur in ex ante efficient organizational designs when asymmetric information is present the optimal allocation policy involves a hurdle rate criterion in which the hurdle rate is strictly in excess of the cost of capital thus inducing rationing in some states of the world typically resources are optimally allocated such that slack exists in other states the optimal allocation policy trades off these two inefficiencies

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

the moderating role of the complementary nature of technological resources in the diversification performance relationship this article analyzes the moderating role of complementary technological resources in the diversification performance relationship our contention is that entry into a new market poses challenges to complementary resources that are already being exploited and that diversification thus comes at a substantial cost to the diversifying firm using a sample of the world s largest manufacturers we find that the effect of diversification on productivity is positive for firms with an initially low level of overall technological complementarity firms that specialize and have existing complementarities are negatively affected by diversification because the process of unbundling and rebundling technological resources is disruptive to productive firms

management and ownership effects evidence from five countries despite the growing recognition in the corporate governance literature that the relationship between ownership concentration and profitability is context dependent this issue has not yet been subjected to direct empirical investigation using a single cross national sample this study empirically examines the ownership concentration performance relationship across the nations of canada france germany the united kingdom and the united states essentially we argue that the correlation if any between ownership concentration and firm profitability differs across countries in a systematic way determined by the national system of corporate governance results indicate that important and statistically significant differences do in fact exist across the countries studied 1998 john wiley sons ltd

user delay costs and internal pricing for a service facility this paper studies optimal pricing and capacity decisions for a service facility in an environment where users delay cost is important the model assumes a general nonlinear delay cost structure and incorporates the tradeoff between the delay cost and capacity cost we find necessary and sufficient conditions for the optimality of a pricing rule that charges out service resources at their marginal capacity cost we examine the issue of budgetary balance and find that net value maximization entails a budget deficit for the service facility that is the service facility should be evaluated as a deficit center the results provide guidelines under which the optimal magnitude of the deficit can be determined

pricing and capacity decisions for a service facility stability and multiple local optima we consider a model for optimal pricing and capacity for a service facility the problem is formulated as one of optimal design of a single server queueing system in which the design variables are the service rate and the arrival rate equivalently the price charged for admission the model is a variant of one introduced by dewan and mendelson we allow for an upper bound on the arrival rate and consider slightly more general user value functions we show that an optimal solution may not lie in the interior of the feasible region and thus may not be characterized by the first order differential conditions moreover the first order conditions typically have several solutions some of which may be relative minima and produce a negative value of the objective function customer value minus the sum of expected delay cost and capacity cost per unit time we also examine the stability of the equilibrium arrival rate and the convergence of a dynamic adaptive algorithm for finding the optimal service rate in the context of a model in which the distribution of customers value of service is uniform we show that the equilibrium arrival rate is stable if and only if the service rate is above a threshold value which depends on the price charged for admission and the parameters of the uniform distribution of value of service the dynamic adaptive algorithm always converges to a relative maximum of the objective function if the service rate can be adjusted every time the arrival rate changes otherwise the algorithm will start to diverge if and when the service rate ever falls below the threshold value associated with stability of the equilibrium arrival rate

product line selection production decisions and allocation of common fixed costs abstract product costs are determined in practice for the purpose of pricing make buy and product line decisions while many costs are directly assignable to individual products common costs have historically presented a difficult conundrum a variety of cost allocation methods are used in practice or have been suggested in the literature to attach these costs to individual products while such procedures are theoretically unsupported they may be able to mimic the correct decisions adequately in this paper we investigate the efficacy of certain cost allocation schemes in a competitive environment the schemes are evaluated with reference to a scenario in which there is a single fixed cost incurred in manufacturing any subset of a set of products under idealized conditions a cournot nash model is developed that describes the number of entering firms and the equilibrium price and production levels using this as a point of reference it is shown that by using gross contribution as an allocation basis optimal product line decisions are achieved without distorting the selection of production levels moreover competitive pressure sufficient to drive total net profits close to zero is sufficient to require that any allocation rule supporting optimal product line decisions yields allocations nearly proportional to gross contributions an analogy is drawn with the allocation of joint costs to coproducts in a competitive environment and the corresponding allocation in proportion to net realizable value

q and the tax bias theory abstract a growing body of literature analyzes the variation in q the ratio of financial market value to asset current replacement cost and makes inferences about attributes such as monopoly power profitability managerial performance etc these studies ignore potential biases embedded in q that result from non neutral tax policies this study examines the association between q and tax biases and establishes that differences in accumulated depreciation tax shields explain significant variation in q the implication that q should be adjusted for tax biases before use in empirical research is examined further adjusting q for tax biases at least with the factors herein leads only to minor changes in econometric analyses

game theory and cost allocation problems problems of allocating joint costs in a reasonable way arise in many practical situations where people decide to work together to save costs cost allocation methods based on game theoretical concepts take into account the strategic aspects of cost allocation situations we give a survey of cost allocation methods based on the nucleolus and the shapley value and introduce also a new one the so called cost gap allocation method which is based on the i value it is shown that for some large subclasses of cost allocation problems this new cost allocation method coincides with old separable cost methods proposed in the thirties by the tennessee valley authority and also with the separable costs remaining benefits scrb method properties of this cost gap allocation method are also treated

cost of congestion operational efficiency and management accounting abstract in this paper we examine the conflicts that arise when multiple users share a common facility the conflicts could arise at three levels a between the individual users and the division manager b among the divisions or different classes that use the facility and c between the divisions and the headquarters in the presence of private information we analyze these conflicts and outline the role of cost allocation mechanisms and thereby account for congestion in each of these situations the results of this paper demonstrate the usefulness of resolving these conflicts in an organization and hence has direct managerial accounting implications

application specific r d capabilities and the advantage of incumbents evidence from the anticancer drug market this paper examines the proposition that during competence destroying technological changes incumbents are incompetent in researching in house a radically new technology they only retain market leadership if their undestroyed proprietary complementary assets compensate for their research incompetence in contrast to prior research i propose that there is not one but two sets of capabilities necessary to execute research and development r d sets that differ in their market specificity a technology specific set i e technological platforms that are non market specific and an application specific set i e knowledge of the application that is therefore market specific although all markets require both sets of capabilities to execute r d prior research has analyzed cases where the application was not as complex and therefore application specific capabilities did not represent strategic factors because at the start of a technological discontinuity application specific capabilities are undestroyed and have accrued only to incumbents when complex enough these capabilities can represent a source of competitive advantage for these firms even in the face of competition from diversifying entrants reusing previously acquired technological platforms i find evidence consistent with my proposition based on data on outcomes from drug discovery as estimated through clinical endpoints in phase i trials for firms competing in the anticancer drug market one of the most complex markets within pharmaceuticals as the market transitions into the biotechnology revolution the proposition in this paper implies that although technological platforms can help firms move across markets application specific r d capabilities can help firms retain leadership within a market across technological discontinuities

comparison of accounting systems and heuristics in selecting economic optima in this paper we demonstrate how certain institutional characteristics of real accounting settings namely incomplete information on costs biases in accounting measurements of costs and information processing limitations of accounting users can be rigorously combined to contrast different accounting techniques variable versus absorption costing given an economic setting in which an optimal output exists our analysis involves determining the extent to which a reasonable informationprocessing rule when employed in conjunction with different accounting conventions yields an output level that approximates that optimal output

cost allocation and opportunity costs one explanation for the widespread use of allocated fixed costs is that they can serve as a proxy for difficult to calculate opportunity costs this explanation is pursued by modeling a service department as an m m s s queueing system two main results are that the expected value of opportunity costs equals both the incremental productivity of capacity and the optimal transfer price when the cost of capacity is of the form cs as and is close to one we show that allocated fixed costs are a good proxy for average opportunity costs however if there are great economies of scale is close to zero then a method which charges users only for the variable costs of the service department is recommended finally the economic efficiency of transfer prices based on either variable cost or full cost is compared with optimal transfer pricing policies

asymmetric information incentives and intrafirm resource allocation this paper considers the question how should a firm allocate a resource among divisions when the productivity of the resource in each division is known only to the division manager obviously if the divisions as represented by their managers are indifferent among various allocations of the resource the headquarters can simply request the division managers to reveal their private information on productivity knowing that the managers have no incentive to lie the resource allocation problem can then be solved under complete or at least symmetric information this aspect is a flaw in much of the recent literature on this topic i e there is nothing in the models considered which makes divisions prefer one allocation over another thus although in some cases elaborate allocation schemes are proposed and analyzed they are really unnecessary in the model we develop a division can produce the same output with less managerial effort if it is allocated more resources and effort is costly to the manager we further assume that this effort is unobservable by the headquarters so that it cannot infer divisional productivity from data on divisional output and managerial effort given these assumptions we seek an optimal resource allocation process our results show that certain types of transfer pricing schemes are optimal in particular if there are no potentially binding capacity constraints on production of the resource then an optimal process is for each division to choose a transfer price from a schedule announced by the headquarters division managers receive a fixed compensation minus the cost of the resource allocated to them at the chosen transfer price resources are allocated on the basis of the chosen transfer prices if there is a potentially binding constraint on resource production a somewhat more complicated but similar scheme is required

aggregate production planning for process industries under oligopolistic competition abstract we consider a competitive version of the traditional aggregate production planning model with capacity constraints in the general case multiple products are produced by a few competing producers oligopoly with limited capacities production quantities prices and consequently profits depend on production and allocation decisions of each producer in addition there is competition for the raw material whose supplies are limited and where prices reflect these limitations such situations have recently occurred in several process industry settings including petro refining petrochemicals basic chemicals cement fertilizers pharmaceuticals rubber paper food processing and metals we use a successive bertrand cournot framework to address this problem and to determine optimal production quantities prices and profits at the producers and at the raw material supplier our analysis allows a new way to understand and evaluate the marginal value of additional capacity when there is competition for the market and raw materials

simpson s reversal paradox and cost allocation allocation of indirect costs among products sometimes yields a paradoxical result that unit cost for each product may increase under one method of allocation and may decrease for each product under another method the stalcup paper company case illustrate such behaviour of costs at the same time provides an accounting example of simpon s reversal paradox simpson 1951 which blyth 1972 discussed in the statistics literature as with other paradoxes this cost allocation paradox disappears upon closer scrutiny this paper examines the properties of allocated costs in order to arrive at an intuitive understanding of the results the relationship of the cost allocation problem to simpson s paradox and the implications of the analysis for cost control are briefly discussed necessary and sufficient condition for occurrence of the paradox is also given this abstract was borrowed from another version of this item

a capability based view of competitive heterogeneity the question of how firms differ is paramount to strategy scholars this question has motivated empirical research on the factors influencing performance differences among close competitors it also has motivated work on factors that increase or decrease the mean performance of firms in an industry theories about resources and capabilities tend to dominate discussions of heterogeneity in performance and superior performance yet the strategy field lacks a cumulative body of empirical work showing how firms differ this article derives conclusions and questions from empirical work on capabilities we then discuss work that complements but lies beyond the boundaries of traditional capabilities research we conclude by suggesting approaches to and areas of future work

competitive location production and market selection abstract this paper investigates how firms should select their production sites capacities and quantities under rivalry there are assumed to be a finite number of discrete potential location sites and a finite number of discrete markets which may or may not coincide firms first decide either simultaneously or sequentially whether and where to establish a production site the fixed cost of opening a facility and the marginal cost of production both depend on where the facility is located firms then choose capacity and a production quantity for each market prices in each market are determined by the total quantity available at that location via the cournot mechanism this formulation thus addresses multi market oligopolistic spatial competition with heterogeneity in production and logistics costs we then analyze the nash equilibria of the entry game and provide sufficient conditions for the existence of equilibria in the simultaneous entry game at equilibrium firms may not produce for all markets and may have limited market areas however these areas may overlap so that there are multiple suppliers in any market in general there may not be a first mover advantage and early entrants may earn lower profits than later entrants

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

relevant costs congestion and stochasticity in production environments abstract conventional management accounting principles used to evaluate relevant costs have been developed under the assumption of deterministic manufacturing settings manufacturing operations however are complex and stochastic in this paper we examine the impact of stochasticity in the production process on relevant costs based on a dynamic assessment of capacity constraints we develop a model to analyze the behavior of relevant costs with respect to changes in the expected duration and variability in set ups and processing an implication of this analysis is that for profit maximization capacity will exceed expected demand if production rates or demand are stochastic

determinants of venture capital firms preferences regarding the industry diversity and geographic scope of their investments abstract competition is intensifying in the venture capital industry in the u s the number of venture capital firms vcfs tripled from 1980 to 1989 supplier power in the form of institutional investors such as pension funds continues to grow foreign venture capital has grown to the extent that commitments to foreign vcfs exceeded domestic commitments in both 1988 and 1989 further alternative sources of financing for entrepreneurs such as individual investors angels corporations and strategic alliances are increasingly viable options vcfs face pressure to seek lower risk investments improve rates of return and provide value to new venture development surprisingly few scholarly studies have begun to investigate the strategies vcfs are aiming to implement in order to deal with this increasing pressure building on the premise that decisions regarding product market scope are a key component of firm strategy hofer and schendel 1978 this study examined 169 domestic vcfs in order to identify factors that might explain variations in preferences regarding the industry diversity and geographic scope of their investments the sample drawn from california massachusetts and texas represented about 27 of all u s based vcfs in 1987 the year in which the data were gathered in terms of the total size of investment portfolio the average for these 169 vcfs was 69 8 million which is statistically indistinguishable from the u s average of 65 million results indicate that 1 vcfs specializing in early stage ventures prefer less industry diversity and narrower geographic scope relative to other vcfs 2 corporate vcfs i e those owned by non financial corporations prefer less industry diversity but broader geographic scope relative to non corporate vcfs 3 larger vcfs prefer greater industry diversity and broader geographic scope than do smaller vcfs and 4 provision of small business investment companies sbic financing by the vcf has no impact on preferences regarding industry diversity but is associated with a preference for narrower geographic scope one implication of these results is that vcfs in the u s are not homogeneous as regards the intended product market scope of their portfolios this in turn holds implications not only for vcfs but also for their suppliers limited partners buyers entrepreneurs and policy makers vcfs can no longer rely on haphazard investment schemes they need to attract investors by virtue of the benefits offered by their portfolio strategy and they need to attract superior investments via offering valueadded services and know how potential investors in venture capital will want to examine for example the impact on risk and return of investing smaller amounts in several vcfs at one extreme versus making one large investment in a very diversified vcf at the other extreme the results of this and other studies suggest that outcomes timing magnitude and riskiness of returns of choosing such alternatives will vary widely and will depend in great part on the strategies of the vcfs involved it will not be possible for investors to make wise choices without a full examination of their own objectives and of the profiles of vcfs entrepreneurs with the most attractive ventures have alternative sources of financing to consider and should weigh the benefits of being financed and supported by various vcfs as part of the vcfs portfolios knowing a vcf s preferences regarding product market scope improves their chances of approaching and selecting the right fit and for those entrepreneurs with a narrower set of options such knowledge may make the difference between receiving and not receiving financing in a timely manner finally policy makers may be able to make use of knowledge of the forces that influence the investment strategies of vcfs presently concerns for policy makers may include the gap in seed capital increased foreign presence in the u s market and the export of promising innovative technology via alliances with foreign firms all of these factors are influenced by the strategies pursued by vcfs as they jockey for position in the increasingly competitive venture capital market

externalities average and marginal costs and tolls on congested networks with time varying flows for congested networks on which flows vary over time we derive system marginal costs user perceived costs and user externality costs for each arc and path we also obtain a set of optimal congestion tolls and flow controls which may be used to shift the user determined flows toward a socially preferred pattern an important way in which our results differ from the usual static analysis is that the social cost externality depends not only on the level of congestion but also on the rate of increase or decrease of congestion this is intuitively explicable as follows consider users delayed on an arc their delays will be further compounded or multiplied if congestion has increased during the time they are delayed on the other hand their delays will be reduced if congestion has declined during the time they are delayed this multiplier effect is such that the resultant dynamic externalities can easily be a few times larger or smaller than the externalities derived in the usual static analysis as a r

agency and institutions national divergences in diversification behavior a fundamental theme in comparative crosscountry research is the convergence of organizational forms in diverse national settings in this paper we examine a special instance of this theme the pattern of diversification across industries a common argument is that technical and market forces compel firms to adopt coherent strategies of diversification this thesis implies that there should be a convergence in the patterns of interindustry diversification in all market based economies an institutional approach offers an alternative view from this perspective when diversification across industries is seen as subject to nation specific governance and resource constraints countries should vary widely in their interindustry diversification patterns to test these alternative views we analyze the diversification patterns of large corporations from five countries france germany japan the united kingdom and the united states our results do not support the hypothesis of a common pattern of diversification across countries and thus reject the technological thesis by comparing two case studies in which entrepreneurs attempted to diversify by acquisition in france and the united states we examine how institutions and agents interact to permit different diversification patterns to arise in diverse national environments the statistical results and case studies imply that given the fixity of certain institutions even if countries are subject to globalization convergence in diversification patterns is not necessary the results cast doubt upon the merits of stylizing the debate as a choice between technical and institutional theories of organizational choice rather the study points to the importance of two theoretical statements the first is to inquire under what conditions there is likely to be consensus on a given means end rationality for a specific managerial decision e g diversification the second is to understand the structural opportunities available to entrepreneurs for diversifying through acquisitions iterating between these cognitive and structural considerations shifts the focus from the false debate between technological and institutional arguments to the study of entrepreneurship situated in historically given national environments

global cities and multinational enterprise location strategy we combine the concept of location derived by economic geographers with theories of the multinational enterprise mne and the liability of foreignness developed by international business scholars to examine the factors that propel mnes toward or away from global cities we argue that three distinctive characteristics of global cities global interconnectedness cosmopolitanism and abundance of advanced producer services help mnes overcome the costs of doing business abroad and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence consistent with these arguments our analysis of a large sample of mne location decisions using a multilevel multinomial model suggests not only that mnes have a strong propensity to locate within global cities but also that these choices are associated with a nuanced interplay of firm and subsidiary level factors including investment motives proprietary capabilities and business strategy our study provides important insights for international business scholars by shedding new light on mne location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of mnes the primary agents of economic globalization that shape the nature of global cities

risk assessment and profit sharing in business networks abstract nowadays network is the preferred governance form to conduct economic transactions network solution allows to reach flexibility maintaining cost and quality level since network concept refers to a great variety of organizational hybrids it is possible to choose the one that fits better market requirements the new trends in inter organization relationships push towards network solutions companies are interested in relationships with partners and customers to overcome resource dependence to enter too risky market or simply differentiate their business portfolio the proposed research focuses on the network concept aiming at highlighting threats and opportunities to investigate the double nature of the risk concept network structures offer flexibility and higher profit as a consequence and business risk sharing opportunity these two aspects profit and risk are strictly related and have to be considered together to depict a complete scenario this implies that risk assessment and management in network environment cannot neglect profit sharing or in other words that profit sharing mechanisms should use risk as driver in this context our research proposes a methodology to measure risk taking into account network peculiarities risk estimation is a basic step to evaluate the opportunity cost of capital needed to compute the network net present value npv that is assumed as base in the profit sharing process the profit sharing process has been tackled using the shapley value approach that is inspired to the fairness principle while the opportunity cost of capital is assessed using the capital asset pricing model capm

capabilities transaction costs and firm boundaries although the literature on firm boundaries has been greatly influenced by transaction cost economics strategy scholars often emphasize the importance of capabilities considerations in these decisions this has led to a debate that we suggest has generated more heat than light we argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent competitive explanations is fundamentally misleading we offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach s limitations and provides a unified and logically consistent understanding of boundary decisions

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

subjective rationality self confirming equilibrium and corporate strategy this paper presents a formal theory of subjective rationality and demonstrates its application to corporate strategy an agent is said to be subjectively rational when decisions are consistent with the available facts and where these are lacking with the agent s own subjective assessments a self confirming equilibrium arises when agents subjectively rational actions generate events that are consistent with their own expectations equilibrium strategies may be suboptimal because certain counterfactual beliefs may be erroneous and yet fail to be contradicted by events observed in equilibrium this weakening of the stronger rationality assumptions inherent in many of the more familiar equilibrium ideas appears well suited to applications in strategy in particular performance advantage may be sustained by a firm when its subjectively rational competitors persistently employ suboptimal self confirming strategies

asset specificity and a firm s borrowing ability an empirical analysis of manufacturing firms abstract this paper investigates the importance of asset specificity in explaining differences in firms ability to borrow money with empirical research we investigated whether there is a relationship between asset specificity and the debt ratio of a slovene manufacturing firm the basic idea of the research was to link the sources of finance that define property rights and the attributes of the assets that are the objects of finance a firm s capital structure can be viewed as a description of the allocation of risk and control among investors

intangible resources as a key factor in the internationalisation of spanish firms abstract in this paper we analyse the effect of the availability of intangible resources measured by way of tobin s q on the probability of spanish firms increasing their international diversification we find that this impact is positive and statistically significant we also discover that firms with a higher endowment of intangible resources increase their presence in their current markets concentration and that those with a multinational status also expand to new markets scope