wage inflation unionization and monopoly power this paper uses panel data from 301 four digit manufacturing industries over the years 1959 to 1980 to examine how market structure affects the wage response to aggregate demand disturbances the authors use a new classical macroeconomic framework in which such shocks are identified with the unexpected component of money growth they find that product market power does not affect the response of wages to such shocks but that unionization does to be specific greater unionization leads to a faster wage response they also find that wages rise equiproportionately with expected money growth i e expected money is neutral copyright 1990 by blackwell publishing ltd

an alternative approach to market structure and the markup ratio hall s studies of market power emphasize that the markup ratio of price over marginal cost is an important indicator for assessing the role of market structure in resource allocation without using concentration ratios and is also a good measure of allocative efficiency the basic idea was that price is equal to marginal cost if there is perfect competition and constant markup ratio a statistrical model was developed to estimate the markup ratio if the markup ratio estimated for an industry is unitary then the null hypothesis of competition is not rejected if however it is greater than one the alternative hypothesis of non competition is not rejected the theory mandates that monopoly power is dynamically constant despite a nonconstant productivity residual hall assumes in etimation that technical progress or solow residual has a randomness this assumption implies that the procyclicity of technical progress is not a true phenomenon the spurious procyclicity is revealed in the estimated mark

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

balancing exploration and exploitation in alliance formation do firms balance exploration and exploitation in their alliance formation decisions and if so why and how we argue that absorptive capacity and organizational inertia impose conflicting pressure

industry window dressing we explore a new mechanism by which investors take correlated shortcuts and present evidence that managers using sales management take advantage of these shortcuts specifically we exploit a regulatory provision wherein a firm s primary industry is determined by the highest sales segment exploiting this regulation we provide evidence that investors classify operationally nearly identical firms as starkly different depending on their placement around this sales cutoff moreover managers appear to exploit this by manipulating sales to be just over the cutoff in favorable industries further evidence suggests that managers engage in activities to realize large tangible benefits from this opportunistic action

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

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

in good times and bad reciprocity in an uncertain world axelrod s work has demonstrated that tit for tat is an extremely robust strategy in the repeated two person prisoner s dilemma however most analyses and experiments of the repeated game have assumed perfect monitoring each player either can observe his partner s choice directly or can infer it perfectly after observing the outcome yet in many real dilemmas outcomes are functions of exogenous events as well as the players moves and it is often difflcult to disentangle intended and unintended effects with certainty in the first model of this paper the performance of tit for tat under uncertainty is compared to the performance of other behaviorally plausible backward looking strategies the second model uses game theory to analyze the equilibrium properties of tit fortat in a game with incomplete information in both models introducing a small amount of uncertainty makes a big difference

the intertemporal stability of the concentration margins relationship using a longitudinal data base we find that there has been a substantial narrowing of the spread between the price cost margins of concentrated and unconcentrated industries including measures of macroeconomic fluctuations into standard price cost margin regressions we find significant differences in cyclical behavior across market structure we also explore a possible explanation unionization for differences in cyclical behavior finally we investigate the degree to which our results are affected by the potential simultaneity of concentration advertising and the price cost margin

profitability and product differentiation in greek food industries this paper explains the increasing difference between the profit margins of differentiated and undifferentiated greek food manufacturing industries between 1988 and 1994 using panel data the 2sls results for the fixed effects model show important differences across the high medium and low differentiated industry groups the increasing difference between the margins of the highly differentiated group which includes the most profitable industries and the other groups can be mainly attributed to the greater sensitivity of margins in differentiated industries to advertising and demand changes

normal costs and demand effects in price setting a study of retailing the study aims at contributing to the debate whether there are demand effects in models that seek to explain prices as mark ups on costs for costs it considers actual costs normal costs and an intermediate model with a partial adjustment to the deviation of actual from normal costs for demand effects it considers an effect on the price level of a change of demand with an allowance for asymmetry between demand growth and demand decline tests and estimates are conducted on the basis of data from retailing

interorganizational alliances and the performance of firms a study of growth and innovation rates in a high technology industry this paper investigates the relationship between intercorporate technology alliances and firm performance it argues that alliances are access relationships and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners in particular large firms and those that possess leading edge technological resources are posited to be the most valuable associates the paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition particularly when one of the firms in an alliance is a young or small organization or more generally an organization of equivocal quality alliances can act as endorsements they build public confidence in the value of an organization s products and services and thereby facilitate the firm s efforts to attract customers and other corporate partners the findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners consistent with the status transfer arguments the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations copyright 2000 john wiley sons ltd

the effect of dynamic competition on price cost margins this paper analyses the intertemporal adjustment process of price cost margins at the four digit standard industrial classification sic industry level our intial analysis shows the assumption that the adjustment process is consistent over all industries is inappropriate while the assumption that the adjustment process is consistent over two digit industries is supported in approximately 31 of the sample industries we proceed to analyse industry specific adjustment parameters and find that 50 of the sample are compatible with a decay of 90 of the supranormal return with four years and 85 of the sample exhibit margins that decay in approximately 10 years further analysis allows us draw some weak conclusions on the determinants of the adjustment parameter we find a change in cocentration high imports a mature market and low research and development expenditures contribute to slightly lower adjustment coefficients and a faster decay of supranormal profits finally the modelling of the adjustment

the performance consequences of ambidexterity in strategic alliance formations empirical investigation and computational theorizing although alliance studies have generally favored an ambidextrous approach between exploration and exploitation they tend to overlook a firm s characteristics its industry constraints or the dynamic network in which the firm is embedded this study examines the ambidexterity hypothesis and its boundary conditions with a unique research method we not only analyze empirical data from five u s industries spanning eight years but also expand theoretical insights to the network level by building a computer simulation model both our empirical and simulation results reveal the contingencies of the ambidexterity hypothesis in alliance formation our findings show that although an ambidextrous formation of alliances benefits large firms a focused formation of either exploratory or exploitative alliances benefits small firms in an uncertain environment an ambidextrous formation enhances firm performance but so does a focused formation in a stable environment finally the simulation model demonstrates that a firm s centrality and structural hole positions in network relations can moderate the relationships between alliance formation choices and firm performance and that the ambidexterity hypothesis may be limited to the earlier stage of the network our study provides critical evidence into the viability of adopting a dynamic network perspective in understanding the ambidexterity hypothesis and advancing strategic alliance research beyond static and dyadic levels

investment and the exchange rate an analysis with firm level panel data abstract this paper investigates the relationship between exchange rate fluctuations and the investment decisions of a sample of italian manufacturing firms the results support the view that a depreciation of the exchange rate has a positive effect on investment through the revenue channel and a negative effect through the cost channel the magnitude of these effects varies over time with changes in the firm s external orientation as measured by the share of foreign sales over total sales and the reliance on imported inputs consistent with the predictions of our theoretical framework the effect of exchange rate fluctuations on investment is stronger for firms with low monopoly power facing a high degree of import penetration in the domestic market and of a small size we also provide evidence that the degree of substitutability between domestically produced and imported inputs influences the effect through the expenditure side

retail margins during recession and growth the influence of consumer spending on retail price setting behaviour is investigated in the context of a theory developed in previous research the results indicate that the effect is not the same for growth and decline of spending

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

a comparative analysis of intertemporal behavior of profits japan and the united states this paper first asks whether the working of market forces in japanese manufacturing industries is unique to them or similar to u s counterparts it is found that autoregressive profit equations for 376 japanese firms over 1964 82 are on average similar to those for 413 u s firms over 1964 80 the paper next asks whether the interindustry pattern of profit adjustments in japan is related to industry traits in a manner analogous to the united states in this case specific national differences between the two countries in the effects of imports industry growth and capital intensity on the profit adjustment process are found copyright 1989 by blackwell publishing ltd

concentration history and market power in us manufacturing industries for a 1963 1992 panel of us manufacturing industries the relationship between seller concentration and both price cost margins pcms and prices is investigated for industries divided by whether concentration has recently increased or decreased regressions of pcm in levels and first differences and price equations in first differences establish that the positive effect of concentration on prices and profits is always weaker in industries where concentration has recently increased and always stronger in industries where concentration has recently decreased these results are attributed to the different endogeneity biases in the two samples increasing concentration industries are more likely the ones where leading firms have lowered prices to gain share while decreasing concentration industries are more likely the ones where smaller firms have lowered concentration by lowering prices an additional conclusion is that the cost reducing effects of changes in concentration are greater for increasing conc

returns to scale market power and the nature of price rigidity in new keynesian models with self fulfilling expectations increasing returns to scale and firms market power are two potential sources of sunspot expectations in neoclassical models we show that in new keynesian models returns to scale and market power can have fundamentally different implications for broad macroeconomic issues including self fulfilling expectations depending on the nature of price rigidity our findings suggest that the design of stabilization monetary policy can depend on precise knowledge about the economy s real and nominal features therefore a clear understanding of the specific economic environment and its relevance to monetary policymaking for ensuring macroeconomic stability can be an integrated part of monetary policy practice

the cyclical behavior of the price cost markup countercyclical markups constitute the key transmission mechanism for monetary and other demand shocks in new keynesian models this paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost the first part of the paper studies markups in the aggregate economy and the manufacturing sector we use bils s 1987 insights for converting average cost to marginal cost but do so with richer data we find that all measures of markups are either procyclical or acyclical moreover we show that monetary shocks lead markups to fall with output the second part of the paper merges input output information on shipments to the government with detailed industry data to study the effect of demand changes on industry level markups industry level markups are found to be acyclical in response to demand changes

profit margins and the business cycle evidence from uk manufacturing firms this paper presents some empirical models of profitability using panel data covering 709 large u k companies ove r the 1970s and 1980s focusing specifically on the role of aggregate demand shocks in shaping firm level profitability in basic regressi ons and in quite complex econometric models the results suggest that firm level profit margins fell heavily during the deep manufacturing recession of the early 1980s and as such are consistent with model s predicting the procyclical nature of profit margins this result hol ds across different product groups producer goods consumer durables a nd nondurables though the timing of the impact of aggregate shocks appears to differ copyright 1993 by blackwell publishing ltd

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

manufacturing margins differences between small and large firms the influence of labour costs concentration capacity utilization exports and firm size on manufacturing profit margin is studied with a discrimination between small and large firms

the cyclical behavior of strategic inventories this paper presents a model in which inventories are used by a duopoly to deter deviations from an implicitly collusive arrangement higher inventories allow firms to punish cheaters more strongly and can thus help to maintain collusion we show that when demand is high the incentive to deviate increases so that increases in inventories may be optimal for the duopoly this rationalizes the observed positive correlation between inventories and sales in our empirical section we show that as our model predicts this correlation is more important in concentrated industries we also provide several examples where inventories have been a factor in cartel behavior

the differential impact of uncertainty on investment in small and large businesses we study the impact of profit uncertainty on investment and whether or not this response is different in industries that are dominated by small firms versus those that are dominated by relatively larger firms our key findings are that the sign of the investment uncertainty relationship is negative and that the quantitative negative impact is substantially greater in industries dominated by small firms these results are robust to accounting for potential endogeneity of the uncertainty measure alternate procedures for measuring uncertainty and alternate ways of segmenting industries into small and large firm groups

foreign trade elasticities and import discipline this paper provides new evidence on the trade as discipline7rsquo hypothesis by considering the determination of price cost margins with a panel of 41 four digit us food manufacturing industries from 1972 to 1987 following the empirical specification suggested by competitive fringe oligopoly models we include estimated domestic demand elasticities and cross price elasticities of import demand as explanatory variables and the empirical results confirm the importance of these variables in assessing the hypothesis

cooperation in microcredit borrowing groups identity sanctions and reciprocity in the production of collective goods cooperation to produce collective goods is widespread in society and yet so is its failure theorists have identified competing mechanisms for facilitating group cooperation including group identity sanctions and reciprocity here i use empirical data to explore how these mechanisms influence cooperation in the natural laboratory of microcredit borrowing groups microcredit makes loans to high risk borrowers through borrowing groups in which individuals access to credit is dependent on the behavior of other members of the group thereby creating a social dilemma for members and an opportunity to observe cooperation in real world groups by analyzing both collective goods production loans and compliance repayment i find that the competing mechanisms have differential effects group identity sanctions and reciprocity are all associated with more borrowing in the group only reciprocity however limits loan delinquency and is associated with group longevity suggesting both that collective goods p

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

network centrality and organizational aspirations a behavioral interaction in the context of international strategic alliances the authors wish to acknowledge the financial support provided by the spanish ministry of science and education under projects eco2013 48496 c4 2 r eco2013 48496 c4 4 r and eco2017 48496 c4 4 r

networks diversity and productivity the social capital of corporate r d teams we argue that the debate regarding the performance implications of demographic diversity can be usefully reframed in terms of the network variables that reflect distinct forms of social capital scholars who are pessimistic about the performance of diverse teams base their view on the hypothesis that decreased network density the average strength of the relationship among team members lowers a team s capacity for coordination the optimistic view is founded on the hypothesis that teams that are characterized by high network heterogeneity whereby relationships on the team cut across salient demographic boundaries enjoy an enhanced learning capability we test each of these hypotheses directly and thereby avoid the problematic assumption that they contradict one another our analysis of data on the social networks organizational tenure and productivity of 224 corporate r d teams indicates that both network variables help account for team productivity these findings support a recasting of the diversity performance debate in terms of the network processes that are more proximate to outcomes of interest

scale effects time varying markups and the cyclical behaviour of primal and dual productivity this paper presents estimates of the degree of returns to scale using nonparametric measures of primal and dual productivity for 2 digit us manufacturing industries as part of the analysis the cyclical behaviour of primal and dual productivity measures are considered time varying markups are allowed for and the small sample properties of the instrumental variables estimator used to derive the estimates from the primal and dual relations examined both the primal and dual estimates indicate the existence of increasing returns to scale for the durable goods industries the simulation results indicate there is a slight tendency for the dual equation estimates to overestimate the degree of returns to scale however small sample bias appears to be most severe for the non durable goods industries

collusive pricing with capacity constraints in the presence of demand uncertainty we explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty we find support for the conventional view that periods of low demand lead through the emergence of excess capacity to a breakdown of collusive pricing we also find that the nature of price wars depends on the degree of excess capacity in the industry while small amounts of excess capacity can lead firms to engage in mild price wars characterized by uniform price reductions and market share stability more severe price wars characterized by price undercutting and market share instability can emerge if excess capacity is sufficiently great finally our results lend support to the view that market share instability is a symptom of ineffective collusion

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

price mark ups market structure and business fluctuation in japanese manufacturing industries howard wach tel and peter adelsheim 1977 and keith cowling 1983 have argued that firms in concentrated industries tend to increase their price mark ups in recession this hypothesis is variously tested for japanese manufacturing industries in 1958 82 most of the results weakly suggest an effect opposite to wachtel and adelsheim and only when industry specific business conditions are taken into account is some albeit weak evidence found in favor of them copyright 1987 by blackwell publishing ltd

the determination of profit margins in uk manufacturing this paper examines the determinants of profit margins in 91 u k manufacturing industries over the period 1983 86 it considers how the inclusion of labor market characteristics in empirical industrial organization specifications affects the estimated concentration margins relationship the empirical work pays detailed attention to the endogenous nature of variables derived from structural industrial organization models the authors report instrumental variables estimates of margins equations in which there emerges a significant role for labor market characteristics indeed both unionization and industrywide unemployment are found to depress profit margins the impact of concentration is seen to be biased downward when these variables are omitted

market disequilibria and their influence on small retail store pricing in this paper a quantitative model is developed to explain differences in average store price levels we assume that stores may operate under different economic regimes that is under excess capacity or excess demand prices are expected to the higher than average in case of an excess demand regime and lower in an excess capacity situation actual information regarding the regime that applies to each individual store is not available therefore we propose to use a so called switching model with endogenous regime choice to analyse the store price differences the model developed in the paper is estimated using four largely differing types of stores from the dutch retail trade these samples consist mainly of small stores

capital income taxation with imperfect competition a key feature of modern dynamic economies is imperfect competition some imperfect competition is due to institutions such as patents and copyrights that allow firms to exercise market power over the sale of products they invent some imperfect competition is due to various forms of increasing returns to scale and product differentiation since market power is an essential feature of innovation and growth in the new economy as it was in the old economy we need to know how imperfect competition affects the conventional wisdom on tax policy i argue that it has particularly striking implications for the taxation of capital the current consensus among economists is

international trade and industrial organization this survey reviews recent contributions to the interface between international trade and industrial organization import competition places a substantial limit on domestic market power in the short run competitive conditions can influence the speed and efficiency of a domestic market s adjustment to international disturbances exports effects on competition among national sellers are unclear and depend on the scope for price discrimination models of trade with monopolistic competition explain intra industry trade and also the widely observed sensitivity of firm size to market size exposure to trade also increases the technical efficiency of production diverse policy issues turn on the distinction between national and global welfare and the scope for commitment

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

firm market share price flexibility and imperfect information this paper argues that firms with larger market shares will be relatively better informed about demand conditions the main implications are 1 more rapid price adjustments in concentrated industries 2 price leadership in industries with dominant firms and 3 price setting behavior by the concentrated side of the market

governance institutions and adaptation costs evidence from the fall of the berlin wall this paper investigates how institutions governing the employment relationship influence firms adaptation to environmental changes after the berlin wall fell migration from east germany accounted for an abrupt increase in the supply of a key resource labor in the west i study responses to this disruption among firms in the economically important machinery and equipment industry i find that western firms adapted to migration by increasing employment unless they were affiliated with a works council an institution that limits the firm s autonomy in managing its workforce i also find evidence of institution contingent responses to migration in two areas of firm strategy vertical boundaries and the focus on exploration versus exploitation the results suggest that hybrid i e less hierarchical governance institutions increase adaptation costs the results also indicate that such adaptation costs have implications for multiple aspects of firm decision making that are nominally beyond the scope of those governance institutions this paper was accepted by bruno cassiman business strategy

transaction cost influences on the adjustment of industries prices and outputs short run adjustments of prices and outputs in producer goods industries should reflect suppliers continuing quasi contractual relationships with their industrial customers the authors test hypotheses about these relationships by analyzing cross section determinants of time series coefficients showing the rates of adjustment of industries prices and outputs to movements of demand inferred from customers outputs they confirm that price adjustments decrease with the bases for sticky relations with customers the sensitivity of quantity adjustments increases with those bases and decreases with suppliers own adjustment costs they also confirm the standard hypothesis that price flexibility decreases with producer concentration copyright 1987 by mit press

potential foreign competition in us manufacturing abstract trade barriers are falling and firms are competing in increasingly open international markets the data reveal considerable heterogeneity across industries in the intertemporal path of import shares against this backdrop we focus on an issue that is increasingly important for competition policy analysis potential foreign competition inadequate attention to this aspect could result in a biased picture of total competition leading to misguided antitrust decisions drawing on the conceptual framework outlined by landes and posner harvard law review 94 1981 937 we measure potential foreign competition by the intertemporal response of industry import share to industry specific and aggregate economic factors and our estimates indicate wide variation across industries in this dimension a particularly striking finding is that highly concentrated industries which are more likely to be subject to antitrust scrutiny have a greater degree of potential foreign competition than industries with low concentration even though the extent of actual foreign competition is similar across these groups of industries

increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle a challenge to models of equilibrium indeterminacy based on increasing returns is that required increasing returns for generating indeterminacy can be implausibly large and rise quickly with the relative risk aversion in labor we show that unsynchronized wage adjustment via a relative wage effect can both lower the required degree of increasing returns for indeterminacy to a plausible level and make it invariant to the relative risk aversion in labor consequently indeterminacy and sunspot driven fluctuations can emerge for plausible increasing returns regardless of the relative risk aversion in labor our model generates reasonable dynamics in terms of matching the business cycle and sunspot shocks become more important with labor market friction

depreciation rules and the relation between marginal and historical cost the reported cost of a product frequently contains historical cost com ponents that reflect past investments in productive capacity we examine a setting wherein a firm makes a sequence of overlapping capacity investments earlier research has identified particular accrual accounting depreciation rules with the property that on a per unit basis the historical cost of a product captures precisely its marginal cost relative to this benchmark we investigate and characterize the direction and magnitude of the bias in reported histori cal cost that results from alternative depreciation rules including in particular straight line depreciation in conjunction with partial direct expensing in ad dition we demonstrate that for a reasonable range of parameter specifications the resulting bias is rather small finally we apply our framework to two spe cific settings first in a regulatory context we establish the extent to which the accounting profit margin is indicative of a firm s pricing power in the product market second we model an internal control scenario in which a manager s performance is evaluated using residual income and identify the distortions in investment levels that result from the use of alternative depreciation rules

the response by the norwegian aluminium industry to changing market structure abstract this paper analyses how changes in market structure have affected the margins measured by the lerner index of norwegian aluminium plants instead of showing the expected negative trend due to increased competition internationally the margins are found to move procyclically around a constant that significantly exceeds zero three explanations for this stability in the levels of the margins are identified a better exploitation of scale economies increased productivity and product specialisation which allows norwegian producer prices to increase more rapidly than the international reference price

determinants of price adjustment this paper reports results of an empirical study investigating the adjustment speed of prices to change in costs and demand particular emphasis is laid on the impact of concentration on the adjustment speed in addition the effects of the business cycle and capital intensity are considered it shows that concentrated industries tend to adjust prices faster while capital intensity has a negative impact prices are more flexible during an upswing than in times of a recession

the cyclical behaviour of manufacturing prices in a small open economy this paper presents a disaggregated regression study of the cyclicality of the mark up over costs in belgian manufacturing industry this is found to be low reflecting a great reluctance on the part of price setters to adjust prices to uncertain market signals this appears to be especially the case for exporters when compared with firms active on the domestic market exporters face greater uncertainty because their competitors are less well known and their market shares tend to be smaller implying a higher variance of industry sales estimates

small business economics a perspective from the netherlands textabstractin the analysis of economic phenomena either within or across industries there is room for integrating the role of small business this contribution can be made by aggregation or generalization of the findings at the meso level which again are partly based upon analyses at the micro level the netherlands has a long history in macro model building a recent discussion among dutch macro economists considered the future of econometric model building at the macro level and considered how best to improve this model building the explicit integration of scale effects however was not mentioned i am convinced that improvements in this respect are possible in particular i have in mind the role which small businesses play in certain areas such as wage structure employment or investments the dissection of macro prognoses into a small business component and a remaining component is a traditional practice in the netherlands 1 finally there is much concern in the netherlands for the calculation of regulatory effects decomposed into effects for small and large businesses if anywhere in the world there is a solid foundation for studying scale effects in both macro and sectoral models it most certainly has been in the netherlands there is a strong tradition of macro econometric model building groups of econometricians specialized in small business research exist dutch policymakers show concern and the required research apparatus is available

investment and demand uncertainty this paper investigates the effects of uncertainty on the investment decisions of a sample of italian manufacturing firms using information on the subjective probability distribution of future demand for firms products according to the entrepreneurs the results support the view that uncertainty weakens the response of investment to demand thus slowing down capital accumulation consistent with the predictions of the theory there is considerable heterogeneity in the effect of uncertainty on investment it is stronger for firms that cannot easily reverse investment decisions and for those with substantial market power we show that the negative effect of uncertainty on investment cannot be explained by uncertainty proxying for liquidity constraints

social network effects on the extent of innovation diffusion a computer simulation of innovation diffusion no longer focus exclusively on explaining the rate at which innovations diffuse or the sequence in which they are adopted they also focus on explaining why certain innovations diffuse extensively be coming de facto standards whereas others do so partially or not at all many of these theories specify a bandwagon process a positive feedback loop in which increases in the number of adopters create stronger bandwagon pressures and stronger bandwagon pressures in turn cause increases in the number of adopters factors affecting if and how many times this feedback loop cycles explain if and how many potential adopters jump on a bandwagon we argue that one important factor has not yet been incorporated into theories explaining bandwagons extent the structure of social net works through which potential adopters of innovations find out information about these innovations which can cause them to adopt these innovations we advance a theory of how the structure of social networks affects bandwagons extent we propose that both the number of network links as well as small seemingly insignificant idiosyncracies of their structures can have very large effects on the extent of an innovation s diffusion among members of a social network

indirect competition with spatial product differentiation although two markets may appear to be separate sometimes one firm participates in both of them that firm provides a link between the two markets such a straddling firm transmits indirect competition from each market to the other since its actions reflect competitive conditions in both markets in a model of spatial product differentiation the author shows that indirect competition may make a market perform significantly better than the number of firms would indicate moreover total consumer surplus increases if two previously distinct markets are linked by a straddler finally the author considers implications of these results for antitrust analysis copyright 1989 by blackwell publishing ltd

the impact of leadership turnover on trading relations between states we test how domestic political institutions moderate the effect of lead ership turnover on relations between states deriving hypotheses from recent theo retical work bueno de mesquita et al and mcgillivray and smith we examine how leader change affects trading relations between states using dyadic trade data con sistent with hypotheses we find that large winning coalition systems such as democ racies are relatively immune from the vagaries of leadership change in such systems trade remains relatively constant whether leader change occurs or not in contrast when winning coalition size is small as in autocratic states leadership change pro foundly alters relations causing a decline in trade finally we examine instances of poor relations measured by a significant decline in trade compared to historical lev els as predicted instances of poor relations are less common between pairs of democ racies than other dyadic pairings further leadership turnover in autocratic systems restores trading relations between states the effect of leadership change in democ racies is much less pronounced since first drafting this article the united states has invaded iraq and deposed its leader saddam hussein for more than a decade iraq experienced harsh economic sanctions with hussein s removal these sanctions have been lifted and iraq is in the processes of being reinstated into the international community although it was the iraqi people who bore the costs of the sanctions the sanctions were aimed at hussein s regime with hussein removed the prospects for improved relations between iraq and western states look strong while iraq offers an extreme example this article assesses how the turnover of leaders affects relations between states as measured by trade flows in partic ular drawing on recent theoretical developments we examine how domestic insti tutions and leadership turnover affect dyadic trade flows consistent with the theoretical arguments we find that trade flows between states depend on the inter action of institutions and leader turnover

price cost margins exports and productivity growth with an application to canadian industries a model is estimated for oligopolistic industries producing multiple outputs in short run equilibrium outputs are sold domestically and exported while capital is treated as a quasi fixed factor the model is applied to the canadian non electrical machinery electrical products and chemical products industries the results show that there is significant oligopoly power in each of the industries and that the degree of this power differs between the domestic and export markets total factor productivity is decomposed price cost margins exert little influence but the rate of technological change returns to scale and the rate of capital adjustment determine productivity growth

margins concentration unions and the business cycle theory and evidence for britain abstract a number of recent studies have examined the cyclical relationship between price cost margins concentration and unions u s data has concluded that unions reduce margins margins vary over the cycle and concentration unionisation and the cycle interact in their effect on margins however there is almost no theory to account for these results we propose a simple theory that assumes only that there is overhead labour present at the firm this produces theoretical predictions that can explain these results and discriminate between existing theories we present results of our own using u k panel data and show similar findings to the u s

competition in the economic crisis analysis of procurement auctions we study the effects of the recent economic crisis on firms bidding behavior and markups in sealed bid auctions using data from austrian construction procurements we estimate bidders construction costs within a private value auction model we find that markups of all bids submitted decrease by 1 5 percentage points in the recent economic crisis markups of winning bids decrease by 3 3 percentage points we also find that without the government stimulus package this decrease would have been larger these two pieces of evidence point to pro cyclical markups

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

firm dynamics and markup variations implications for sunspot equilibria and endogenous economic fluctuations this paper analyzes how the interaction between firms entry and exit decisions and variations in competition gives rise to self fulfilling expectation driven fluctuations in aggregate economic activity and in measured total factor productivity tfp the analysis is based on a dynamic general equilibrium model in which net business formation is endogenously procyclical and leads to endogenous countercyclical variations in markups this interaction leads to indeterminacy in which economic fluctuations occur as a result of self fulfilling shifts in the beliefs of rational forward looking agents when calibrated with empirically plausible parameter values and driven solely by self fulfilling shocks to expectations the model can quantitatively account for the main empirical regularities characterizing postwar u s business cycles and for 65 of the fluctuations in measured tfp

do unions capture monopoly profits this paper challenges the conclusion reached in recent studies that unions reduce profits exclusively in highly concentrated industries from their review of previous studies and their analysis of 1977 data on 367 fortune 500 firms the authors conclude that there is no convincing evidence that concentration produces monopoly profits for unions to capture moreover they find that the union wage effect is not greater in concentrated industries as suggested by the hypothesis that unions capture concentration related profits evidence is found suggesting that a firm s market share its expenditures on research and development and its protection from foreign competition provide more likely sources for union rents than does industry concentration several recent studies have found that unions reduce profits significantly and some have concluded that this profit reduction is restricted to highly concentrated industries both conclusions are important the finding that unions reduce profitability indicates that in general the cost increasing effects of unions outweigh any positive productivity effects they may bring to the workplace such a

labour productivity and profitability in the dutch flower trade this paper makes an attempt to illustrate the use of econometric models as frame of reference for diagnosing small firm performance for this purpose two models are developed explaining differences in labour productivity and profitability among dutch flower exporters in addition we show how these models can be used for inter firm performance comparisons

is forward looking inflation targeting destabilizing the role of policy s response to current output under endogenous investment we show that with endogenous investment virtually all monetary policy rules that set a nominal interest rate in response solely to expected future inflation induce real indeterminacy in models with i staggered prices ii staggered prices and staggered wages and iii staggered prices staggered wages and firm specific capital in i policy s response to current output can help significantly in ensuring determinacy with an infinite labor supply elasticity but little with empirically plausible labor supply elasticity in ii responding to output always helps a great deal though under low price stickiness and without capital adjustment cost it may call for a moderate response to output in order to ensure determinacy for a wide range of response to inflation in iii even a tiny response to output can always render equilibrium determinate for a wide range of response to inflation

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

input choices under price uncertainty theory shows that depending on risk preferences and technological parameters price uncertainty may alter firms choice of capital intensity this paper presents an empirical analysis of the effect of price uncertainty on firms choices of capital and labor stocks empirical results from a cross section of manufacturing industries as well as within industries over time show that greater price uncertainty increases an industry s capital labor ratio it appears that risk aversion does not dominate firms decision making these empirical findings have implications for the analysis of factor demand and productivity and capacity utilization rates

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

advertising price and welfare evidence from the u s brewing industry the welfare effect of advertising has been a subject of controversy among economists for some time one obvious concern is simply the cost of advertising in 1990 for example americans spent 130 1 billion on advertising to put this figure into perspective this amounted to 523 per capita 2 35 percent of gross national product and roughly 80 percent of the national deficit 1 much of the early debate regarding the social desirability of advertising stems from different preconceptions regarding its purpose 13 14 8 49 for example according to the kaldor 29 hypothesis advertising is primarily persuasive or deceptive in nature it changes consumer preferences creates brand loyalty and persuades consumers to favor commodities that they did not previously desire an opinion survey by bauer and greyser 5 indicates that consumers believe that much of advertising is persuasive and greyser and reece 27 158 find that 85 percent of the over 2 700 harvard business review subscribers surveyed believe that advertising persuades people to buy things they do not need if advertising is purely deceptive then it can be classified as a bad and reduces welfare

exposure and markups this article examines how to properly specify and test for factors that affect exchange rate exposure starting from theoretical underpinnings and a sample of u s manufacturing industries between 1979 and 1995 we find that 4 of 18 industry groups are significantly exposed to exchange rate movements through the effect of industry competitive structure export share and imported input share on average a 1 appreciation of the dollar decreases the return of the average industry by 0 13 consistent with our model s predictions as an industry s markups fall rise its exchange rate exposure increases decreases exchange rate movements are an important source of risk for a firm they affect a firm s expected cash flows and or change the terms of competition for exporters importers and multinationals hung 1992 estimates that during the 1980s u s manufacturing industries lost approximately 23 billion year or 10 of total profits due to the dollar s movements surprisingly early studies which assume exchange rate exposure to be constant e g jorion 1990 bodnar and gentry 1993 and amihud 1994 find that exchange rates have no effect on the stock returns of u s multinationals exporters or manufacturing industries recently however allayannis 1997 and bodnar dumas and marston 1998 examine time varying exposure of industry returns 1 in particular the former article focuses on the effect the variation of u s industries import and export shares have on exposure while the latter focuses on pass through and exposure in a sample of japanese export oriented industries besides trade shares and pass through exchange rate exposure also depends on the markup of an industry specifically in industries with

financing constraints and inventories abstract this paper investigates the impact of financing constraints on firms inventory and cash management in particular it examines the extent to which the presence of such constraints may account for certain empirical regularities these include e g the excess variance of production vis a vis that of sales as well as the counter cyclicality and persistence of the inventory sales ratio we model the intertemporal decision making on production cash retention and dividends of a firm that is exposed to stochastic demand shocks in every period and faces constrained access to external sources of finance it is found that the presence of financing constraints can explain the excess variance of production in a model which otherwise would not deliver this result moreover as long as demand is positively serially correlated they also contribute to the counter cyclicality and persistence of the inventory sales ratio the paper suggests that financing constraints should not be discarded as a factor driving the cyclical behaviour of inventories