management buyouts evidence on taxes as a source of value this paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986 the median value of tax benefits estimated at the time the buyout company goes private has a lower bound of 21 and an upper bound of 143 of the premium paid to pre buyout shareholders the estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions the paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout the results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts

a prelaunch diffusion model for evaluating market defense strategies this paper describes the development and application of a marketing model to help set an incumbent s defensive marketing strategy prior to a new competitor s launch the management problem addressed is to assess the market share impact of a new entrant in the residential australian long distance telephone call market and determine the factors that would influence its dynamics and ultimate market appeal the paper uses probability flow models to provide a framework to generate forecasts and assess the determinants of share loss we develop models at two levels of complexity to give both simple robust forecasts and more detailed diagnostic analysis of the effect of marketing actions the models are calibrated prior to the new entrant s launch enabling preemptive marketing strategies to be put in place by the defending company the equilibrium level of consideration of the new entrant was driven by respondents strength of relationship with the defender and inertia while trial was more price based continued use of the defender depends on both service factors and price the rate at which share loss eventuates is negatively related to the defender s perceived responsiveness saving money being the only reason to switch and risk aversion prelaunch model forecasts validated six months after launch using both aggregate monthly sales data and detailed tracking surveys are shown to closely follow the actual evolution of the market the paper provides a closed form multistate model of the new entrant s diffusion a methodology for the prelaunch calibration of dynamic models in practice and insights into defensive strategies for existing companies facing new entrants

private equity jobs and productivity private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance to evaluate these claims we construct and analyze a new dataset that covers us buyouts from 1980 to 2005 we track 3 200 target firms and their 150 000 establishments before and after acquisition comparing to controls defined by industry size age and prior growth buyouts lead to modest net job losses but large increases in gross job creation and destruction buyouts also bring tfp gains at target firms mainly through accelerated exit of less productive establishments and greater entry of highly productive ones jel d24 g24 g32

a simple auctioneerless mechanism with walrasian properties abstract a simple mechanism for reallocating holdings is described in which no auctioneer is required outcomes are determined solely from traders actions and without any requirement that the mechanism be in equilibrium the mechanism is shown to exactly duplicate the performance of the walrasian auctioneer both in its equilibria and in its disequilibrium path if individuals are price takers and if the number of individuals is large to approximately duplicate the auctioneer s performance even when individuals behave strategically each taking account of his own influence on prices

competitive strategies for late entry into a market with a dominant brand this paper considers optimal positioning advertising and pricing strategies for a firm contemplating entry in a market dominated by an entrenched competitor drawing on behavioral research on consumer preference formation we develop an individual level model that reflects differing consumer responses to similar products offered by the dominant brand and later entrants an effect we term asymmetric preferences from the resulting aggregate market response model we derive several competitive implications notably 1 that preference asymmetry can make a differentiated late entry strategy optimal even if preferences would appear to dictate otherwise and 2 that me too strategies are not equilibrium late entry strategies more generally our analysis suggests that preference asymmetry can contribute to the persistent competitive advantage of dominant brands

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

employment protection and takeovers labor restructuring is a key driver of takeovers and the associated synergy gains worldwide in a difference in differences research design we show that major increases in employment protection reduce takeover activity by 14 27 and the combined firm gains synergies by over half consistent with the labor channel behind these effects deals with greater potential for workforce restructuring show a greater reduction in volume number and synergies the reforms do impede layoffs and the associated wage costs match the magnitude of synergy losses offer prices are not fully adjusted with both bidders and targets exhibiting lower returns following the reforms

an equilibrium analysis of defensive response to entry using a coupled response function model we determine the optimal response to competitive entry in a market characterized by a market share attraction model the response of an incumbent is limited to changes in prices advertising and distribution expenditures brand positions are assumed to be fixed we also assume that the entrant s position is chosen exogenously and that the sales potential of the market is constant after proving the existence of a unique nash equilibrium we show that the optimal response depends on the relative market share of the incumbents the response by nondominant brands with market shares less than 50 mirrors the prediction by decoupled response function models reduce price advertising and distribution spending for the dominant brand having a market share of 50 the response is to reduce price and increase marketing spending this finding explains previous empirical results that could not be addressed by the decoupled models

the internationalization of venture capital abstract u ntil a few years ago venture capital was as american as apple pie w e had the money the entrepreneurial tradition the over the counter market and the tax structure to make venture capital practically an american monopoly today venture capital is increasingly a conduit for the flow of capital and ideas on a global basis in 1987 according to the european venture capital association more money was raised for venture capital in europe than in the united states 5 1 billion versus 4 9 billion though activity is greatest in france and the united kingdom there are now venture capital associations throughout western europe japan has venture capital firms and even china has started to think of ways risk capital can help solve its development problems

taxing away m a capital gains taxation and acquisition activity abstract capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions this lock in effect increases premiums required for deal completion preventing some m as from taking place at all we estimate the effect of capital gains taxation on the quantity of realized m a deals and compute the deadweight loss related to taxing these transactions we find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1 annually for the united states this implies unrealized synergy gains of 9 3 billion each year due to capital gains taxes

comments on competitive responsiveness marketing science features many and diverse articles that analyze competitive responsiveness although recent marketing science editorials e g shugan 2002 suggest that competitive responsiveness is only a part of a comprehensive competitive marketing strategy it remains a vital part for that reason and many others marketing science is particularly proud of this special issue edited by david j reibstein and dick r wittink before introducing and vigorously applauding both the editors and authors of this excellent special issue we emphasize that competitive responsiveness raises numerous issues including whether one can forecast outcomes of new policies based on past observations made under old policies i e the lucas critique and decisions regarding which variables should be considered endogenous shugan 2004 i e determined within the model perhaps normative models are inherently perishable evolution in market structure requires modifications over time also although complete consistency within the world of the model is aesthetically pleasing imposing industry specific exogenous constraints that might appear unrelated to the modeling assumptions is sometimes necessary

evolutionary implementation and congestion pricing we consider an implementation problem faced by a planner who manages a roadway network the problem entails both hidden information and hidden actions we solve the planner s problem by introducing a new class of mechanisms and a new notion of implementation the mechanisms called price schemes attach transfers to the available routes they do not involve direct revelation the method of implementation is evolutionary requiring that players who follow any reasonable myopic adjustment process eventually learn to behave as the planner desires we show that efficient behaviour can be guaranteed using simple decentralized price schemes

determining the appropriate depth and breadth of a firm s product portfolio abstract some firms have broad product lines others have lean product lines to determine the appropriate number of entries in a specific firm s product line the author develops a model that balances the benefits of increased revenue from a broad product line against production and engineering costs two innovations were central in the development of the model 1 redefining how products are scored on various product attributes so that attribute scores vary normally across the population of products and 2 redefining how the number of entries in a product portfolio is calculated in order to discount the significance of entries that are highly similar to existing products the author also introduces the notion of a centroid time to more easily adjust sales and total development costs for product life cycle and investment life cycle effects these redefinitions enable a firm s profit to be modeled as a simple function of its effective number of product entries the effective number of competitors entrie

is there discretion in wage setting a test using takeover legislation anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels testing this popular perception has proven difficult however because independent variation in the extent of managerial discretion is needed in this paper we use states passage of anti takeover legislation as a source of such independent variation passed in the 1980s these laws seriously limited takeovers of firms incorporated in legislating states since many view hostile takeovers as an important disciplining device these laws potentially raised managerial discretion in affected firms if uncontrolled managers pay higher wages we expect wages to rise following these laws using firm level data we find that relative to a control group annual wages for firms incorporated in states passing laws did indeed rise by 1 to 2 or about 500 per year the findings are robust to a battery of specification checks and do not appear to be contaminated by the political economy of the laws or other sources of bias our results suggest that discretion significantly affects wages they challenge standard theories of wage determination which ignore the role of managerial preferences

commentary defensive marketing strategies for every new product and service entrant there are usually many incumbents who must defend their positions in the market hence defensive strategy is as least as critical as new product strategy our 1983 article argued that defensive strategy critically depends on the distribution of buyer preferences and the position of the new entrant relative to the position of the incumbent in a multidimensional attribute space since the appearance of our 1983 article in marketing science research in defensive strategy has progressed in both prescriptive and descriptive directions subsequent research on defensive strategy has also addressed empirical methodological theoretical and substantive issues today defensive strategy is more important than ever with shorter new product life cycles persistent service innovation remarkable technological change global competition and the invention of new channels of distributions

assessing the impact of management buyouts on economic efficiency plant level evidence from the united kingdom we assess the total factor productivity of 35 752 manufacturing establishments before and after management buyouts mbos mbo plants are less productive than comparable plants before the transfer of ownership they experience a substantial increase in productivity after a buyout which appears to be due to measures undertaken by new owners to reduce the labor intensity of production via outsourcing of intermediate goods and materials these findings which are pervasive across industries imply that mbos reduce agency costs and enhance economic efficiency our evidence is consistent with jovanovic and rousseau 2002 who suggest that ownership changes shift resources to more efficient uses and to better managers

response to competitive entry a rationale for delayed defensive reaction empirical studies examining responses to new product entries come to the puzzling conclusion that in general an incumbent reacts to a new entrant after a significant delay even easy to implement price cuts are observed after significant lag following entry these findings seem to contradict the existing literature that either implicitly assumes or strongly advocates immediate defensive responses to limit competitive encroachment when a competing firm enters the market consumers may be uncertain about the entering firm s product quality the incumbent firm through rigorous tests may fully know the entrant s quality suppose the incumbent aggressively lowers price this may cause the consumers to wonder if indeed the entrant s quality is high in other words an incumbent s reaction may cause the consumers to make inferences about the entrant s quality such strategic implications of the incumbent s reactions have to be carefully analyzed before determining the optimal response by the incumbent in this paper we propose a conceptual framework for understanding differences in the magnitude and timing of incumbents responses to competitive entries we consider a model in which a monopolist incumbent firm faces competitive entry the incumbent firm knows the true quality of the entrant with certainty although consumers are aware of the incumbent s product quality through their prior experience they are initially uncertain of the entrant s product quality in such a situation a high quality entrant has the incentive to signal her true quality through her strategic price choice however the uncertainty about the entrant s quality is favorable to the incumbent in the sense that consumers believe with a high probability that the entrant s quality is low as a result the strategic incentives facing the incumbent and the entrant oppose each other while the entrant wants to signal her high quality the incumbent wants to prevent her from doing so we demonstrate that one way the incumbent can prevent the quality signaling is to select a higher than his optimal competitive duopoly price in other words the incumbent can prevent or jam the entrant s quality signaling by choosing a price higher than his optimal competitive price when consumers are fully informed about the entrant s true quality though the signal jamming price is lower than the monopoly price the price is substantially higher than the competitive price this marginal reduction in the incumbent s price from the pre entry monopolistic price represents a muted or lack of response by the incumbent to the competitive entry however once the entrant s quality gets revealed in subsequent periods through consumer usage and word of mouth the entrant has no incentive to engage in quality signaling and the incumbent has no incentive to jam it therefore the market reverts to the complete information competitive prices and the incumbent lowers his price considerably this temporal pattern of muted price reduction in the first period followed by a sharp price reduction in the second period corresponds to a delayed defensive reaction in our model although the empirical studies suggest that the delayed reaction may arise due to factors such as managerial inertia or indecision we demonstrate that such a behavior is indeed an optimal strategy for a profit maximizing firm thus our model reconciles empirical results with the equilibrium outcome of a strategic analytical framework furthermore in an experimental setting we test the predictive power of our framework and establish that consumers indeed form conjectures about the entrant s quality based on the incumbent s reactions in the first experimental study we find strong support for the notion that the incumbent s price reaction may indicate entrant s quality in a follow up study we observe that whenever the incumbent lowers prices respondents judge the quality of the entrant to be higher as compared to the case when prices are the same or increased the managerial implication of this paper is that well established incumbent firms should be cautious in the implementation of their defensive responses to product introductions of uncertain quality by competitors of particular concern are situations where the reactions are easily observable by consumers a strong reaction may suggest that the incumbent takes the competitive threat seriously leading consumers to believe in the quality of the competitor s product

competitive reactions to advertising and promotion attacks how do competitors react to each other s price promotion and advertising attacks what are the reasons for the observed reaction behavior we answer these questions by performing a large scale empirical study on the short run and long run reactions to promotion and advertising shocks in over 400 consumer product categories over a four year time span our results clearly show that the most predominant form of competitive response is passive in nature when a reaction does occur it is usually retaliatory in the same instrument i e promotion attacks are countered with promotions and advertising attacks are countered with advertising there are very few long run consequences of any type of reaction behavior by linking reaction behavior to both cross and own effectiveness we further demonstrate that passive behavior is often a sound strategy while firms that do opt to retaliate often use ineffective instruments resulting in spoiled arms accommodating behavior is observed in only a minority of cases and often results in a missed sales opportunity when promotional support is reduced the ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response not the vigilance of competitors

instability in the implementation of walrasian allocations abstract the existence of game forms which implement walrasian allocations as cournot nash equilibrium outcomes is well known however if the equilibria are also required to be locally dynamically stable at least for environments with unique walrasian allocations this paper shows that the requisite game forms do not exist our definition of a game form entails certain regularity conditions and requires the cournot equilibrium to be unique when the walrasian equilibrium is unique the main result is that for such a game form there does not exist a continuous time strategy adjustment process which ensures the local stability of cournot equilibria throughout a certain class of environments having unique walrasian equilibria each trader adjusts his strategy in response to his own characteristics and the observed current strategies of others but the direction and magnitude of adjustments are not constrained by any behavioral assumptions the definitions permit the inclusion of an artificial player such as an auctioneer so the well known tatonnement instability emerges as a special case

venture capital in western europe abstract western europe is in the process of an entrepreneurial renaissance an integral part of this renaissance is the emergence of a venture capital industry in europe although the venture capital institution in europe is very much modeled along the lines of its american counterpart it is significantly smaller in size both in absolute terms as well as in relation to the size of the economy substantial differences in venture capital activity are also found to exist within europe it is most prevaient in the united kingdom france and netherlands surprisingly it is less developed in west germany particularly given the size of this country s economy venture capital in western europe shares some characteristics with that in the united states its investment focus is in high technology and syndication between funds is common unlike the united states however banks are a major source of venture capital funds surprisingly in spite of the economic integration to which the european community aspires the mobility of venture capital across national boundaries is low the authors try to explain differences in venture capital activity in several countries of the european community by examining four aspects of each country s environment in particular the size of the technology sector the cultural influence on entrepreneurial risk taking the government s policy to stimulate risk capital and entrepreneurship and finally the ability of venture backed firms to turn to publicly traded markets as a source of future financing one common factor shared by the three countries with the highest level of venture capital activity is the presence of a secondary stock market geared to the needs of a small relatively new venture contemplating an initial public offering the unlisted securities market in the united kingdom the seconde marche in france and the parallel market in the netherlands serve these needs and provide the mechanism by which venture capitalists can liquidate their equity position after the venture is quoted on these financial markets to the venture it provides access to public financing for funding continued growth in the united kingdom and netherlands the business enterprise has historically been regarded as a tradeable entity and hence the concept of ownership by passive investors is well accepted in france where this is a relatively recent phenomenon the government has played a strong role in stimulating an interest in stock market investing in general it has also created some extremely attractive fiscal incentives for investors in venture capital funds

defensive marketing strategies an equilibrium analysis based on decoupled response function models the entry of a new product attacker into a competitive market is likely to provoke responses from some or all of the existing products defenders this paper investigates the development of optimal defensive strategies based on an understanding of the possible reactions of all the defenders to an optimal attack following lane lane w j 1980 product differentiation in a market with endogenous sequential entry bell j econom 11 1 spring 237 260 we assume that n products each enter sequentially with perfect foresight on subsequent entry then based on new technology an unanticipated attacker enters the n defenders respond in price but not position according to lane s model once this equilibrium is obtained advertising and distribution response functions scale sales we show that under these decoupled response function models of advertising and distribution uniformly distributed tastes and nonincreasing market size the optimal defense for all existing brands is to decrease their respecti

characteristics of smaller company leveraged buyouts abstract while stories abound in the business press about multibillion dollar leveraged buyouts lbos scant attention has been paid to this type of buyout financing in smaller companies some observers argue that lbos are little more than financial manipulation while others suggest that they are an alternative form of entrepreneurial endeavor and that smaller company lbos may serve to rejuvenate formerly stodgy organizations in this study data from 56 firms that experienced an lbo between 1981 and 1987 were analyzed to ascertain the current state of smaller company lbos and what changes if any occur after the lbo takes place most of the smaller company lbos occur in industries far different from the high growth high technology environments of the glamorous start up the cash flow requirements of the high debt component seem to favor industries in which growth is very slow or even negative and in which the technology is stable likewise smaller lbos are relatively immune from foreign competition the typical smaller company lbo individual has generally been associated with the company as an officer or director prior to the buyout and possesses at least a college education while it was presumed that the typical lbo individual would be between 40 and 55 years of age a substantial number of both older and younger individuals were discovered in the study in terms of internal operating changes after the buyout it was expected that the locus of decision making would shift toward the lead investor and that managerial compensation would become increasingly incentive based unexpectedly little change in the locus of decision making occurred but there was a pronounced shift away from salaried compensation sample firms indicated that asset stripping or personnel layoffs occurred relatively infrequently and the most common operating changes focused on such revenue generation efforts as increased sales and marketing and on imposing more stringent capital budgeting requirements the study suggests that the once stable environments in which these firms operated may become far more exciting in the future on the positive side these smaller companies are being operated by owner managers experienced in both the company and the industry the financial requirements of the high debt levels and the resulting emphasis on cash flow rather than profitability may make these firms extremely fierce competitors on the negative side is the instability that may be caused by the high debt levels because most of these companies have not yet faced an economic recession their long term viability remains to be tested

prescribing product upgrades prices and production levels over time in a stochastic environment abstract competitive pressures cause the price of high technology products to erode over time the purpose of this paper is to describe a decision support tool to maximize profit by prescribing three related decisions product upgrading pricing and production levels a stochastic dynamic programming dp model prescribes when to upgrade a product and what new technologies to incorporate to maintain product competitiveness and profit margins it deals with the two major sources of risk demand and the lead time required to complete an upgrade the objective of the dp model is to maximize expected profit over a given planning horizon decision variables prescribe which alternative upgrades to implement and when pricing and production levels benchmarking computational tests are described along with an example demonstrating model application managers can use this dp model to coordinate decisions related to product upgrading pricing and operations management to better meet business objectives

venture capital and management led leveraged buy outs a european perspective abstract management and leveraged buy outs became phenomena of the 1980s from beginnings in the u s they quickly traversed the atlantic spreading first to the u k and then throughout europe the venture capital industry has played a crucial role in the development of buy outs in europe particularly in smaller deals in the u k the netherlands and france this paper examines three aspects of the market for venture and development capital funded management led buy outs in europe it provides a framework for analysis of the different levels of development of each country s market it examines performance of u k buy outs and addresses the extent and nature of exits throughout the paper use is made of the extensive database of european buy outs developed by the authors the main conclusions to emerge are as follows european experience can not be compared to that in the u s as a single economy there are important differences between european countries in respect of the level of buy out activity and the extent to which conditions are or will be favourable for the development of such transactions conceptually a buy out market may be considered as requiring three main factors to be present if it is to develop the generation of buy out opportunities the infrastructure to complete a transaction and opportunities for the investors in a buy out to realise their gains these broad groups may be further sub divided the generation of opportunities will be heavily influenced by attitudes to entrepreneurial risk and hence willingness of managers to buy the ownership structure of industry and hence the generation of entities which are for sale and the state of development of mergers and acquisition markets the infrastructure to complete transactions includes sources of funding both in respect of venture capital availability and the ability of banks to fund transactions the nature of legal and taxation regimes and the existence of intermediaries and advisors who can both identify and negotiate buy outs the existence of suitable exit routes comprises stock market flotation sale to another group and recapitalisation possibly through a secondary buy out many of these factors are similar to the conditions necessary for venture capital deals to develop the generation of entities for sale may take various forms with succession issues in family firms divestment of unwanted divisions privatization of public sector activities and going privates of companies quoted on a stock market being the most important this framework was used to analyze european buy out markets through a combination of interview and desk research the evidence shows that the most highly developed buy out markets and those with the greatest short term potential are not necessarily to be found in the largest economies u s investors who turn towards europe to develop their markets at a time when the u s buy out market is experiencing a downturn and european investors seeking to broaden their activities need to be aware of these differences as in comparable studies in the u s u k lbos on the evidence from our survey of 182 buyouts on average produce performance improvements u k lbos appear to undertake a greater level of new product development and asset purchase after buy out than do their counterparts in the u s and have placed less emphasis on asset disposals than u s lbos managers buying out frequently tightened up their control of working capital the results of our survey indicate support for both the entrepreneurial and agency cost reduction perspectives about buy outs with the former perhaps being somewhat more in evidence exit routes are an important aspect of the buy out market but evidence presented here indicates that buy outs are unlikely to exit in the way in which they originally envisaged in particular buy outs that initially were aiming for flotation on a secondary tier stock market have almost invariably been sold to third parties

the rise of finance and firm employment dynamics this article sheds light on the ongoing employment stagnation in the united states by investigating the links between the rise of finance and firm employment dynamics during the 1982 2005 period i argue that the rise of finance marginalized the role of labor in revenue generating and sharing processes which led to employment stagnation among the largest nonfinancial firms in the united states evidence suggests that increasing investment in financial assets depresses the workforce size the growing dependence on debt reprioritizes the order of distribution heightening the need for workforce reduction the increasing rewards for shareholders generate a downsize and distribute spiral in which labor expense becomes a primary target of cost cutting strategies further analysis indicates that production and service workers are more vulnerable to shifts associated with the rise of finance than managers and professionals

stability of the groves and ledyard mechanism abstract it is shown that the nash equilibria of the game defined by the groves and ledyard mechanism in a public good economy can be made locally stable under cournot best replay behavior and general assumptions on preferneces

stable implementation of lindahl allocations abstract the resource allocation mechanisms using nash equilibrium as the solution concept in economies with incomplete information rely on the assumption that agent s disequilibrium messages converge to a nash equilibrium the mechanisms implementing lindahl allocations are however extremely unstable under the most used process to represent disequilibrium behaviour in games of incomplete information the cournot process we provide a new mechanism overcoming the instability difficulty in the case of quasi linear preferences