do firms differ much with finn profitability data for a cross section of geographic markets it is possible to determine the relative importance of firm and market effects on profitability analysis of variance from a panel of multihank holditig companies in texas suggests that finn effects are more important than market effects in determining profitability and that the magnitudes of the effects vary over time in a 1985 article schmalensee takes a new approach to analysis of the structure conduct performance paradigm schmalensee chooses a purely descriptive approach to distinguish among the classical tradition of bain 1956 which takes markets as the basic unit of analysis with a particular focus on market concentration the revisionist views of demsetz 1973 and peltzman 1977 who view the observed relation between profitability and concentration as reflecting underlying inter firm profitability differences and the managerial view that profitability is determined by firm wide management practices but not necessarily by differences in market share this descriptive approach has two advantages over a structural analysis a descriptive analysis avoids imposition of the troublesome maintained hypotheses inherent in structural models further as scott and pascoe 1986 point out the explanatory power of structural models is generally only a small fraction of that of descriptive models

towards an attention based view of the firm the central argument is that firm behavior is the result of how firms channel and distribute the attention of their decision makers what decision makers do depends on what issues and answers they focus their attention on what issues and answers they focus on depends on the specific situation and on how the firm s rules resources and relationships distribute various issues answers and decision makers into specific communications and procedures the paper develops these theoretical principles into a model of firm behavior and presents its implications for explaining firm behavior and adaptation 1997 by john wiley sons ltd

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

evolutionary theorizing in economics modern economic analysis oriented toward understanding the workings of economies that make extensive use of markets came into existence with three guiding questions all central in adam smith s 1776 1937 the wealth of nations one question concerned order without any central authority guiding and commanding action how is economic activity coordinated the second question was the challenge of explaining the prevailing constellation of prices inputs and outputs what explains the price of labor and the rent of land the third question addressed the processes of economic progress or development smith and other early economists clearly were impressed by the inventiveness the energy and the growing productivity generated by the evolving market economy how to understand its dynamics the first two questions have defined continuing central concerns of the discipline of economics since they first were posed over two centuries ago when not posed in the context of an economy that is understood as in the process of developing they seem to pull the focus of theorizing toward equilibrium conditions the third question concerned with the processes driving economic progress pulls the theorizing toward an evolutionary orientation the question of economic development has waxed and waned in centrality to the discipline as has the importance of evolutionary theorizing during the first several decades of the twentieth century evolutionary thinking and language was widespread in economics but as one contrasts the economic

history friendly models of industry evolution the computer industry the model presented in this paper is the first of a new generation of evolutionary economic models history friendly models history friendly models are formal models that aim to capture in stylized form qualitative and appreciative theories about the mechanisms and factors affecting industry evolution technological advance and institutional change put forth by empirical scholars of industrial economics technological change business organization and strategy and other social scientists in this paper we have analyzed the long term evolution of the computer industry in particular we have examined the emergence of a dominant firm in mainframes the introduction of a major innovation microprocessor the opening up of a new market segment personal computers ad the competition there between newcomers and diversified old established firms we have taken a body of verbal appreciative theorizing developed a formal representation of that theory and found that the formal version of that theory is consistent and capable of generating the stylized facts the appreciative theory purports to explain going through this analytic exercise has significantly sharpened our theoretical understanding of the key factors behind salient aspects of the evolution of the computer industry copyright 1999 by oxford university press

software piracy an analysis of protection strategies software piracy by users is generally believed to harm both software firms through lower profits and buying customers through higher prices thus it is thought that perfect and costless technological protection would benefit both firms and consumers the model developed here suggests that in some circumstances even with significant piracy not protecting can be the best policy both raising firm profits and lowering selling prices key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users the network externality exists because consumers have an incentive to economize on post purchase learning and customization costs

strategic group formation and performance the case of the u s pharmaceutical industry 1963 1982 the focus of this paper is on three major questions 1 what is the theoretical rationale for the strategic group concept 2 does strategic group membership have performance implications and 3 are strategic groups and membership in strategic groups stable characteristics of industries a statistical procedure is proposed to longitudinally identify strategic groups the empirical setting is the u s pharmaceutical industry over the period 1963 82 while performance differences are found in terms of market share profitability differences between groups are not observed neither are differences found in terms of risk and risk adjusted performance these results are attributed to the existence of performance variation within each strategic group a dynamic model of competitive repositioning is proposed which helps integrate the findings from the study

market segmentation strategies of multiproduct firms we analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs offering a targeted product has two effects utility increases for some consumers due to increased fit whereas utility decreases for others due to increased misfit previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation we show that in addition to the degree of fit and misfit the intensity of competition and the fixed cost of offering an additional product determine firms market segmentation strategies extending product lines to target more narrowly defined consumer segments has been a favorite strategy of brand managers for years popular buzzwords like one on one marketing and niche marketing underline its importance in practice in this context we ask to what extent market segmentation is justified from a profitability point of view consider a competitive environment in which each firm can either offer a general purpose product or segment the market by offering products that are tailored to consumers needs while a consumer ceteris paribus prefers a product that is targeted at her own segment she would rather buy a general purpose product than a product that is targeted at another segment segmenting the market therefore has two effects first if a consumer s preferred product is offered she is better off because she is able to buy a product that exactly fits her needs we call this positive aspect of market segmentation fit second if the consumer s preferred product is not offered she is worse off because she ends up with a product that does not satisfy her needs at all this negative aspect of market segmentation is denoted as misfit

product differentiation and endogenous disutility abstract this paper models the choice of degree of focus or general purposeness available to firms by endogenizing transportation costs in an address model of horizontal differentiation the formulation is in three stages entry focus or design competition and price competition the strategic effect of product design is analyzed the equilibrium level of general purposeness is shown to depend critically on neighbor exclusivity the latter and more generally market structure and product diversity are shown to depend on the cost of producing general purpose products if general purposeness is free to design and produce only two firms enter the market and set large transportation costs underproviding product diversity

demand heterogeneity and technology evolution implications for product and process innovation the evolution of technology has been a central issue in the strategy and organizations literature however the focus of much of this work has been on what is essentially the supply side of technical change the evolution of firm capabilities we present a demand based view of technology evolution that is focused on the interaction between technology development and the demand environment in which the technology is ultimately evaluated we develop a formal computer simulation model that explicitly considers the influence of heterogeneity in market demand the presence of consumers with different needs and requirements on firms innovation choices the model is used to examine the dynamics of product and process innovation utterback and abernathy 1975 the analysis reveals that demand heterogeneity offers an alternative to supply side explanations of the technology life cycle further by considering the implications of decreasing marginal utility from performance improvements the model highlights the role of technologically satisfied consumers in shaping innovation incentives and suggests a rationale for a new stage in the technology life cycle characterized by increasing performance at a stable price the stage has not yet been treated formally in the literature but is widely observed most prominently in digital and information based technologies

on the existence of a unique price equilibrium for models of product differentiation abstract we prove the existence of a unique price equilibrium for models of product differentiation these models are characterized by demand functions that depend on differences in prices and have log increasing differences in own price and other prices which implies that best response correspondences are increasing many discrete choice models satisfy these conditions including logit models and nested logit models and the existence theorem can be applied directly with the logarithmic transformation the existence theorem can be extended to models with homogeneous demand functions which characterizes representative consumer models

quality and quantity competition in a multiproduct duopoly author affiliation yi ling cheng ylcheng thu edu twshin kun peng speng econ sinica edu tw acknowledgment we are most grateful to three anonymous referees who generously offered a number of insightful comments to improve this article we have also benefited much from fruitful discussions with takatoshi tabuchi hong hwang and toshihiro matsumura which led to significant improvements in this article we are especially indebted to takatoshi tabuchi for his contributive comments and suggestions finally we would like to thank conference participants at 2010 association for public economic theory in istanbul society for the advancement of economic theory in singapore as well as seminar participants at institute of economics academia sinica and national taiwan university financial support from academia sinica and the national science council taiwan is gratefully acknowledged the usual disclaimer applies 1 introductionmost of the literature dealing with vertical product differentiation such as bonanno 1986 and motta 1993 assumes that each firm can produce only one product however multiproduct firms abound in the real world firms in various industries produce multiple quality differentiated goods for example mercedes benz provides three different classes of sedans namely its c class e class and s class and bmw has its 3 series 5 series and 7 series in addition both lenovo and sony supply around 20 kinds of laptops ranked in accordance with their central processing units and outfits 1a casual survey of the empirical evidence also suggests that any two multiproduct oligopolies usually differentiate the qualities of their products and the patterns of their quality differentiation can be classified into the segmented type and the nonsegmented type the former type implies that the products of one firm are always of higher quality and more highly priced than those of the other firm such as the sedans of bmw and honda all the sedans sold by bmw are more expensive and of higher quality than those of honda the latter type denotes completely different patterns where the products produced by the two firms have interlacing patterns of their prices qualities for example the prices of the mercedes benz c e and s classes are respectively 32 900 52 700 and 87 800 while the prices of bmw s 3 5 and 7 series are given as 33 600 45 800 and 80 300 respectively 2 the prices of their sedans are interlaced and it is inferred that their qualities are interlaced and nonsegmented other examples include the whiskey offered by johnnie walker and edrington and the plasma televisions provided by samsung and sony the nonsegmented patterns of differentiation between the multiproduct firms with similar technological capabilities are very common in reality however the related literature has not shed enough light studying them while the segmented type of quality differentiation has been characterized by champsaur and rochet 1989 1990 with a quality then price competition of multiproduct duopolists the nonsegmented one so far has not been captured and explained in the literature 3therefore this article intends to examine the equilibrium qualities as well as the number of products chosen by the multiproduct firms with identical similar technological capabilities such as mercedes benz and bmw our main purpose is to characterize the patterns of vertical product differentiation and to reveal the properties of quality differentiation between them the contributive articles gal or 1983 de fraja 1996 johnson and myatt 2003 2006 examine a variety quality and quantity competition between multiproduct firms 4 gal or 1983 de fraja 1996 and johnson and myatt 2003 proposition 6 conclude that firms with equal technological capabilities will compete head to head by producing identical products qualities

turf wars product line strategies in competitive markets in this paper we study product line scope and pricing decisions in a horizontally differentiated duopoly past research has shown that a firm may offer a broader product line to attract higher demand or charge a higher price or both and benefit at the expense of its competitor we show that such outcomes may be reversed especially when consumers have relatively high valuation and low heterogeneity in their preferences for the line extension we find that an equilibrium exists such that only one firm prefers to expand scope but profits may be higher for both firms even in the absence of market size expansion this is because a broader scope permits that firm to effectively price discriminate by raising prices for its core customers the competitor optimally responds by lowering prices to gain share and earn a higher profit thus higher prices for the firm expanding its product line translate into higher demand for the competing firm thus increasing profit for both we show that our results hold when firms deploy generic offensive or defensive strategies during product line expansion

standard vs custom products variety lead time and price competition in this paper we study the standardization and customization decisions of two firms in a competitive setting along with variety lead time and price decisions we incorporate consumer heterogeneity both in firm preference or store convenience and in product attribute preferences we find that the equilibrium outcome depends on the cost efficiencies of the production technologies as well as the consumer sensitivity to product fit and lead time we develop an index that signifies the relative attractiveness of the standardization and customization strategies and the potential outcomes we identify the strategic roles of product variety and lead time in the competition in contrast to the previous literature we find that increasing the variety will not intensify the price competition if there is sufficient firm differentiation rather it relieves the price pressure for the firm as it satisfies consumer needs better and enables higher price premiums we also analyze the impact of asymmetric variable costs fixed costs and brand reputation on the equilibrium decisions

anniversary article the strategy field from the perspective of management science divergent strands and possible integration we reflect on the evolution of the strategy field as seen through the window ofmanagement science reflecting the diverse disciplinary roots of strategy research we identify a broad ranging body of work that varies with respect to the assumptions made regarding individual rationality and the level of analysis at which the research is carried out we argue that recent developments begin to delineate a potentially unifying conceptual framework for treating the field s defining questions the conceptual apparatus of evolutionary economics we conclude by laying out important challenges for evolutionary economics if it is to serve as a foundation for both the positive and the normative research agendas of the strategy field

dynamic capabilities what are they this paper focuses on dynamic capabilities and more generally the resource based view of the firm we argue that dynamic capabilities are a set of specific and identifiable processes such as product development strategic decision making and alliancing they are neither vague nor tautological although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence they have significant commonalities across firms popularly termed best practice this suggests that they are more homogeneous fungible equifinal and substitutable than is usually assumed in moderately dynamic markets dynamic capabilities resemble the traditional conception of routines they are detailed analytic stable processes with predictable outcomes in contrast in high velocity markets they are simple highly experiential and fragile processes with unpredictable outcomes finally well known learning mechanisms guide the evolution of dynamic capabilities in moderately dynamic markets the evolutionary emphasis is on variation in high velocity markets it is on selection at the level of rbv we conclude that traditional rbv misidentifies the locus of long term competitive advantage in dynamic markets overemphasizes the strategic logic of leverage and reaches a boundary condition in high velocity markets copyright 2000 john wiley sons ltd

government spending and the distribution of economic growth in the united states total government spending and especially government social spending has increased greatly over the last 50 years what effect this has had on economic growth is a subject of intense debate among politicians policymakers and economists however there has been less attention paid to the distributional effects of government spending even though economic inequality has grown greatly over the last generation and much social spending is at least indirectly intended to reduce inequality the effects of government social spending in the united states on growth in family income at deciles of the income distribution were estimated the results suggested that social spending but not non social spending was likely to increase growth in family income per capita measured over 10 year intervals the largest effects of social spending were for deciles below the median income at no point in the distribution does social spending have a negative effect

can more consumers lead to lower profits a model of multi product competition abstract the article analyzes the optimal pricing strategy of duopoly retailers who sell two goods to three consumer segments two segments that are interested in one good and one that wants to buy both goods the analysis suggests that the markup on one of the goods might be negative and that the existence of consumers who buy both goods can either increase or decrease markups surprisingly the addition of the consumers who buy both goods unchanging the number of the other consumers might decrease profits and increasing the number of consumers who buy one good might also reduce profits this suggests that firms should consider carefully how additional customers might affect the competitive environment and the equilibrium before attempting to attract them to the market

is equal opportunity enough affirmative action policies have come increasingly under attack in recent years both in the courts and in public discourse questions have been raised about the legitimacy of government efforts on behalf of blacks and other racial minorities the criticism seems to have two central themes first it is argued that those policies which have been tried have not had a noticeable effect on the economic standing of minority group members see james smith and finis welch they thus constitute yet another example of costly but ineffective government regulation according to this view the second theme strikes more deeply at the foundation of these policies its adherents argue that even if effective programs could be designed they ought not be implemented there have been philosophical and empirical arguments advanced to support this conclusion essentially the philosophical argument states that it is wrong for government to intervene on behalf of certain groups and thus necessarily at the expense of others this amounts to reverse discrimination a visiting of the fathers sins upon the sons 2 the empirical argument concludes that moral issues aside such intervention is unwarranted because the consequences of historical discrimination have been or will soon be largely eliminated see b wattenberg and w wilson in this essay i would like to offer a defense of affirmative action policies against the second of these thematic criticisms that is i shall hold in abeyance questions concerning the efficacy of particular programmatic efforts and concentrate instead on whether government should in principle be taking actions to facilitate economic progress for minority group members this would seem to be the logical first step in constructing an intellectual basis for affirmative action policies of course philosophers and legal scholars interested in theories of distributive justice have devoted considerable attention to this question in the past ten years see r dworkin and t nagel the approach adopted here differs from these earlier efforts in two ways first i shall endeavor to meet the empirical argument directly by pointing to evidence which suggests that significant racial economic disparity persists secondly i will treat the philosophical argument in a manner in keeping with the economist s traditional approach to the question of the desirability of laissez faire this approach is based upon the concept of market failure intervention is favored over laissez faire when because of some externality the market outcome is inefficient below i argue that an analogous market failure contributes to the maintenance of economic inequality between racial groups in our society as such intervention which redresses this inequality is warranted

unraveling the process of creative destruction complementary assets and incumbent survival in the typesetter industry when radical technological change transforms an industry established firms sometimes fail drastically and are displaced by new entrants yet other times survive and prosper drawing upon an unusually rich data set that covers the technological and competitive history of the typesetter industry from 1886 to 1990 this paper uses a combination of quantitative and qualitative analysis to unravel this process of creative destruction it argues that the ultimate commercial performance of incumbents vs new entrants is driven by the balance and interaction of three factors investment technical capabilities and appropriability through specialized complementary assets in this industry specialized complementary assets played a crucial role in buffering incumbents from the effects of competence destruction and an analysis that examined investment or technical capabilities in isolation would have led to misleading results this work thus highlights the importance of considering multiple perspectives when examining the competitive implications of technological change 1997 by john wiley sons ltd

horizontal and vertical differentiation the launhardt model we show how the spatial duopoly proposed by launhardt in 1885 where firms have access to different transportation technologies allows one to model in a simple and elegant way the two major types of product differentiation i e horizontal and vertical we consider the cases where firms are located near the market end points or near the market center launhardt s analysis of price determination is then extended by allowing firms to choose strategically their transportation rates subgame perfect nash equilibria involve minimum maximum vertical product differentiation when horizontal product differentiation is large small enough

monopolistic competition and general purpose products most models of monopolistic competition study the question of the optimal degree of product differentiation by looking at the number of firms that will locate in characteristics space this is somewhat restrictive the development of general purpose products means that the needs of quite heterogenous consumers can be satisfied with the same homogenous product the private and social incentives to produce general purpose products are studied in this paper within the circular road model of monopolistic competition the degree of general purposeness of a product is approximated by its per unit distance transport costs it is shown that there are strong forces leading the market to supply products whose transport costs are excessively low

entrepreneurial ability venture investments and risk sharing a number of issues that relate to the desirability and implications of new venture financing are examined within a principal agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists the model suggests 1 as long as the skill levels of entrepreneurs are common knowledge all will choose to involve venture capital investors since the risk sharing provided by outside participation dominates the agency relationship that is created 2 the less able entrepreneurs will choose to involve venture capitalists whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information 3 if a costly signal is available that conveys the entrepreneur s ability some entrepreneurs will invest in such a signal and then sell to investors these entrepreneurs however need not be the more able ones the implications for new venture financing of these and other findings are discussed and illustrated by example

profitability transactional alignment and organizational mortality in the u s trucking industry the winds of creative destruction rarely blow more fiercely than in a newly deregulated environment managers simultaneously face a novel focus on operating efficiency and an onslaught of new competitors what must managers do to enable their firms to survive in such an environment what factors bear on firms survival this paper presents an analysis of mortality of large motor carriers in the u s interstate for hire trucking industry after deregulation it examines this phenomenon through a multidisciplinary lens that encompasses organizational ecology neoclassical economics and transaction cost economics the paper posits that carrier mortality is a function of both firm level and industry level attributes which are drawn from both ecological and economic theories while each of these theories separately informs motor carrier mortality the inclusion of predictions derived from both disciplines in one model significantly increases explanatory power over either theory evaluated alone the empirical analysis is among the first to show increased mortality when firms do not adhere to operating policies consistent with transaction cost minimization principles in sum managers are well advised to adopt a multidisciplinary approach to strategy to ensure their firms survival 1997 by john wiley sons ltd

product line rivalry with brand differentiation competition with product rivalry is examined in a model where products are differentiated by both quality and brand name with no commitment firms produce a full product line when firms can commit to restrict their product offerings firms specialize if the degree of brand specific differentiation is small and they produce a full product line if brand specific differentiation is large relative to intrafirm differentiation firms may crowd a product space when all competitors would be better off with specialization brand proliferation is a credible entry deterring strategy if the degree of brand specific differentiation is not too large copyright 1993 by blackwell publishing ltd

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

can price competition dominate market segmentation this note analyses duopoly competition in a two stage location price game while allowing each firm to establish a couple of outlets both the circle and the line model of spatial competition are considered our main result is clear cut in equilibrium neither firm will take up the opportunity of opening two stores this is a warning that market segmentation i e competition from multiple outlets might not be attractive at all because it entails more intense price competition

the role of supervisors in the determination of wages and wage gaps this article considers labour market discrimination by supervisors as a potential contributor to racial and gender wage gaps empirical analysis reveals evidence that all workers except hispanic males earn significantly higher hourly wages when working for a supervisor of the same race and sex as themselves furthermore the results suggest that sex has a larger impact on wages than race for workers with white supervisors while race has a larger impact on wages than sex for workers with minority supervisors based on past research we theorize that the degree of labour discrimination workers face may also be dependent upon the location and size of the firm in which they are employed however decomposing the samples by firm location and size suggests that these two factors cannot adequately explain the observed matched supervisor worker wage effects which supports the notion that these wage effects are largely driven by factors other than supervisor discrimination