competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

comparing the post earnings announcement drift for surprises calculated from analyst and time series forecasts post earnings announcement drift is the tendency for a stock s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks following an earnings announcement we show that the drift is significantly larger when defining the earnings surprise using analysts forecasts and actual earnings from i b e s than when using a time series model based on compustat earnings data neither compustat s policy of restating earnings nor the inclusion of special items in reported earnings contribute significantly to the disparity in drift magnitudes rather our results suggest that this disparity is attributable to differences between analyst forecasts and those of time series models or at least to factors correlated with these differences further we document that analyst forecasts lead to return patterns around future earnings announcements that differ from those observed when using time series models suggesting that the two types of surprises may capture somewhat different forms of mispricing

seasonalities in security returns the case of earnings announcements abstract we document a seasonal pattern in stock returns around quarterly earnings announcement dates small firms show large positive abnormal returns and a sizable increase in the variability of returns around these dates only part of the large abnormal returns can be accounted for by the tendency of firms with good news to announce early large firms show no abnormal returns around announcement dates and a much smaller increase in variability

what s my line a comparison of industry classification schemes for capital market research this study compares four broadly available industry classification schemes in a variety of applications common to capital market research standard industrial classification sic codes have been available since 1939 but are being replaced by north american industry classification system naics codes the global industry classifications standard gics sm system jointly developed by standard poor s and morgan stanley capital international msci is popular among financial practitioners whereas the fama and french 1997 algorithm is used primarily by academics our results show that gics classifications are significantly better at explaining stock return comovements as well as cross sectional variations in valuation multiples forecasted and realized growth rates research and development expenditures and various key financial ratios the gics advantage is consistent from year to year and is most pronounced among large firms the other three methods differ little from each other in most applications

price and variety in the spokes model the spokes model of nonlocalized spatial competition provides a new analytical tool for dierentiated oligopoly and a representation of spatial monopolistic competition an increase in the number of rms leads to lower equilibrium prices when consumers have relatively high product valuations but surprisingly to higher equilibrium prices for in termediate consumer valuations new entry alters consumer and social welfare through price market expansion and matching eects with free entry the market may pro vide too many or too few varieties from a social welfare perspective and the equilibrium price remains above marginal cost even when the number of rms is arbitrarily large

returns policies between channel partners for durable products many durable products with relatively short selling seasons have been using returns policies between manufacturers and retailers as the contractual protocol for some time recently these sectors have witnessed the growing popularity of peer to peer web based used goods markets as important transaction channels between buyers and sellers given that these two issues are critically linked from both supply and demand perspectives in this paper we study the role that consumer valuation of used products plays in shaping a manufacturer s incentive to offer a returns policy option to a retailer when used goods might be devalued compared to new ones as a result of physical deterioration or obsolescence we do so through a two period dyadic channel framework where the retailer faces uncertain demand for a durable product from a renewable set of customers who are impatient but forward looking the manufacturer on the other hand needs to decide whether or not to offer a returns contract to the retailer we first characterize the necessary and sufficient condition under which a returns contract is the equilibrium strategy as well as the corresponding channel decisions further analysis of this condition reveals that a higher consumer valuation of used products increases the likelihood of a returns contract being the equilibrium strategy this result seems to be robust except when the potential demands for the two periods are quite deterministic and uncorrelated however it contradicts the burgeoning managerial trend to replace returns contracts with price only ones in sectors where used goods are valued relatively highly by the consumers we also discuss how used goods markets affect the equilibrium channel decisions as well as how demand uncertainty and logistics costs associated with returns influence the equilibrium contracting strategy

do investors see through mistakes in reported earnings this study investigates whether investors see through materially misstated earnings and whether they anticipate earnings restatements for firms that restate at least one annual report we find that investors are misled by mistakes in reported earnings at the time of initial earnings announcements investors react positively to the component of the favorable earnings surprise that will subsequently be restated and they attach the same valuation to it as to the true earnings surprise we also find that investors anticipate the subsequent downward restatements and start marking stock prices down several months before a restatement announcement so that the full impact of a restatement is about three times as large as the restatement announcement effect indeed we show that investors punish restating firms because the stock price gains that shareholders enjoy when firms initially announce overstated earnings are more than reversed by the time of the restatement announcement

value destruction and financial reporting decisions the comprehensive survey reported here allowed analysis of how senior u s financial executives make decisions related to performance measurement and voluntary disclosure chief financial officers were asked what earnings benchmarks they cared about and which factors motivated executives to exercise discretion even sacrifice economic value to deliver earnings these issues are crucially linked to stock market performance the results show that the destruction of shareholder value through legal means is pervasive perhaps even a routine way of doing business indeed the amount of value destroyed by companies striving to hit earnings targets exceeds the value lost in recent high profile fraud cases

a study of financial analysts practice and theory the study reported here focused on determining what analytical techniques financial analysts who are members of aimr actually use the study achieved a response rate of 33 75 percent questions covered 16 areas including the use of present value analysis the importance of quarterly earnings announcements in decision making belief in efficient markets acceptance or rejection of market anomalies and belief in the importance of international diversification for risk reduction

mail versus mall a strategic analysis of competition between direct marketers and conventional retailers consumers now purchase several offerings from direct sellers including catalog and internet marketers these direct channels exist in parallel with the conventional retail stores the availability of multiple channels has significant implications for the performance of consumer markets the literature in marketing and economics has however been dominated by a focus on the conventional retail sector this paper is an effort toward modeling competition in the multiple channel environment from a strategic viewpoint at the outset a parsimonious model that accommodates the following consumer and market characteristics is introduced first the relative attractiveness of retail shopping varies across consumers second the fit with the direct channel varies across product categories third the strength of existing retail presence in local markets moderates competition fourth in contrast with the fixed location of the retail store that anchors its localized market power the location of the direct marketer is irrelevant to the competitive outcome the model is first applied in a setting where consumers have complete knowledge of product availability and prices in all channels in the resulting equilibrium the direct marketer acts as a competitive wedge between retail stores the direct presence is so strong that each retailer competes against the remotely located direct marketer rather than against neighboring retailers this outcome has implications for the marketing mix of retailers which has traditionally been tuned to attract consumers choosing between retail stores in the context of market entry conditions under which a direct channel can access a local market in retail entry equilibrium are derived our analysis suggests that the traditional focus on retail entry equilibria may not yield informative or relevant findings when direct channels are a strong presence next the role of information in multiple channel markets is modeled this issue is particularly relevant in the context of direct marketing where the seller can typically control the level of information in the marketplace sometimes on a customer by customer basis e g by deciding on the mailing list for a catalog campaign when a certain fraction of consumers does not receive information from the direct marketer the retailers compete with each other for that fraction of the market the retailer s marketing mix has to be tuned in this case to jointly address direct and neighboring retail competition the level of information disseminated by the direct marketer is shown to have strategic implications and the use of market coverage as a lever to control competition is described even with zero information costs providing information to all consumers may not be optimal under some circumstances in particular when the product is not well adapted to the direct channel the level of market information about the direct option should ideally be lowered the only way to compete with retailers on a larger scale with a poorly adapted product is by lowering direct prices which lowers profits lowering market information levels and allowing retailers to compete more with each other facilitates a higher equilibrium retail price in turn this allows a higher direct price to be charged and improves overall direct profit on the other hand when the product is well adapted increasing direct market presence and engaging in greater competition with the retail sector yields higher returns the finding that high market coverage may depress profits raises some issues for further exploration first implementing the optimal coverage is straightforward when the seller controls the information mechanism as in the case of catalog marketing the internet in contrast is an efficient mechanism to transmit information but does not provide the sellers with such control over the level of market information a key reason is that the initiative to gather information on the internet lies largely with consumers the design and implementation of mechanisms to control aggregate information levels in electronic markets can therefore be an important theme for research and managerial interest second direct marketers have traditionally relied on the statistical analysis of customer records to decide on contact policies the analysis in this paper reveals that these policies can have significant strategic implications as well research that integrates the statistical and strategic aspects could make a valuable contribution the paper concludes with a discussion of issues for future research in multiple channel markets including avenues to model competition in settings with multiple direct marketers

the relation between equity incentives and misreporting the role of risk taking incentives abstract prior research argues that a manager whose wealth is more sensitive to changes in the firm s stock price has a greater incentive to misreport however if the manager is risk averse and misreporting increases both equity values and equity risk the sensitivity of the manager s wealth to changes in stock price portfolio delta will have two countervailing incentive effects a positive reward effect and a negative risk effect in contrast the sensitivity of the manager s wealth to changes in risk portfolio vega will have an unambiguously positive incentive effect we show that jointly considering the incentive effects of both portfolio delta and portfolio vega substantially alters inferences reported in prior literature using both regression and matching designs and measuring misreporting using discretionary accruals restatements and enforcement actions we find strong evidence of a positive relation between vega and misreporting and that the incentives provided by vega subsume those of delta collectively our results suggest that equity portfolios provide managers with incentives to misreport when they make managers less averse to equity risk

gaap versus the street an empirical assessment of two alternative definitions of earnings managers security analysts investors and the press rely increasingly on modified definitions of gaap net income known by such names as operating and pro forma earnings we document this phenomenon and discuss competing explanations for the recent rise in the use of such modified earnings numbers and implications for the interpretation of related accounting research our results show that over the past 20 years there has been a dramatic increase in the frequency and magnitude of cases where gaap and street earnings differ further there is a very strong bias toward the reporting of a street earnings number that exceeds the gaap earnings number we also show that the market response to the street earnings number has displaced gaap earnings as a primary determinant of stock prices finally through an analysis of earnings releases we show that management has taken a proactive role in defining and emphasizing the street number when communicating to analysts and investors

a theory of combative advertising in mature markets with competing firms a common role for advertising is to shift consumer preferences towards the advertiser in a tug of war with no effect on category demand in this paper we analyze the effect of such combative advertising on market power we show that depending on the nature of consumer response combative advertising can reduce price competition to benefit competing firms however it can also lead to a procompetitive outcome where individual firms advertise to increase their own profitability but collectively become worse off this is because combative advertising can intensify price competition such that an advertising war leads to a price war similar to price competition advertising competition can result in a prisoner s dilemma where all competing firms make less profit even when the effect of each firm s advertising is to enhance consumer preferences in its favor given such procompetitive effects we further show that cost of combative advertising could be a blessing in disguise higher unit cost of advertising resulting in lower equilibrium levels of advertising leading to higher prices and profits we conduct a laboratory experiment to investigate how combative advertising by competing brands influences consumer preferences our experimental analysis offers strong support for our conclusions

parallel imports challenges from unauthorized distribution channels we examine the problem of parallel imports unauthorized flows of products across countries which compete with authorized distribution channels the traditional economics model of a discriminating monopolist that has different prices for the same good in different markets requires the markets to be separated in some way usually geographically the profits from price discrimination can be threatened by parallel imports that allow consumers in the high priced region some access to the low priced marketplace however as this article shows there is a very real possibility that parallel imports may actually increase profits the basic intuition is that parallel importation becomes another channel for the authentic goods and creates a new product version that allows the manufacturer to price discriminate we propose a two country three stage model to quantitatively study the effects and strategies in the third stage and in the higher priced country where parallel imports have entered we characterize the resulting market segmentation one segment of consumers stays with the authorized version as they place more value on the warranty and services that come with the authorized version another segment switches to parallel imports because a lower price is offered due to lack of country specific features or warranties parallel imports also generate a third and new segment that would not have bought this product before unlike counterfeits that are fabricated by imitators all parallel imports are genuine and sourced from the manufacturer in the lower priced country through authorized dealers therefore the manufacturer s global sales quantity should increase but profit may rise or fall depending on the relative sizes and profitability of the segments a profit maximizing parallel importer should set price and quantity in the second stage after observing the manufacturer s prices in both countries there will be a threshold of across country price gap above which parallel imports would occur in the first stage the manufacturer can anticipate the possible occurrence of a parallel import its price and quantity and its effect on authorized sales in each country to make a coordinated pricing decision to maximize the global supply chain profit under some circumstances the manufacturer should allow parallel imports and under others should prevent them through a stackelberg game we solve for the optimal pricing strategy in each scenario we then find in one extension that when the number of parallel importers increases the optimal authorized price gap should narrow but the prices and quantities of parallel imports may rise or fall in another extension we nd that when the manufacturer has other means such as monitoring dealers differentiating designs and unbundling warranties to contain parallel imports the authorized price gap can widen as a function of the effectiveness of nonpricing controls in summary parallel imports may help the manufacturer to extend the global reach of its product and even boost its global profit if the manufacturer offers a discount version through its authorized dealers it is running a high risk of confusing customers and tarnishing brand images parallel imports may cause similar concerns for the manufacturer but unauthorized dealers are perceived as further removed from the manufacturer therefore there is less risk of confusing consumers when parallel imports are channeled through unauthorized dealers furthermore they are more nimble in diverting the product whenever their transshipment and marketing costs are small enough not to offset the authorized price gap and the valuation discount this may explain why some manufacturers fiercely fight parallel imports while others knowingly use this alternative channel

the existence of low end firms may help high end firms two models of competition between high end and low end products benefiting the high end firms are presented one is a quantity competition model and the other is a price competition model with product differentiation the key factor is the existence of two heterogeneous consumer groups those who demand only high end name brand products and those who care little whether products are high or low end we show that under certain conditions the profits of firms in the high end market are larger when there are firms producing low end products than when there are not the existence of price sensitive consumers who care little about product quality intensifies competition among the high end firms the existence of low end firms functions as a credible threat which induces the high end firms not to overproduce because price sensitive consumers buy products from the low end firms the result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels it has an implication for pricing and marketing strategies established firms should not decrease their prices after the entry of nonestablished firms

the economics of fraudulent accounting we argue that earnings management and fraudulent accounting have important economic consequences in a model where the costs of earnings management are endogenous we show that in equilibrium low productivity firms hire and invest too much in order to pool with high productivity firms this behavior distorts the allocation of economic resources in the economy we test the predictions of the model using firmlevel data we show that during periods of suspicious accounting firms hire and invest excessively while managers exercise options when the misreporting is detected firms shed labor and capital and productivity improves our firm level results hold both before and after the market crash of 2000 in the aggregate our model provides a novel explanation for periods of jobless and investment less growth

direct marketing indirect profits a strategic analysis of dual channel supply chain design the advent of e commerce has prompted many manufacturers to redesign their traditional channel structures by engaging in direct sales the model conceptualizes the impact of customer acceptance of a direct channel the degree to which customers accept a direct channel as a substitute for shopping at a traditional store on supply chain design the customer acceptance of a direct channel can be strong enough that an indepent manufacturer would open a direct channel to compete with its own retailers here direct marketing is used for strategic channel control purposes even though it is inefficient on its own and surprisingly it can profit the manufacturer even when so direct sales occur specifically we construct a price setting game between a manufacturer and its independent retailer direct marketing which indirectly increases the flow of profits through the retail channel helps the manufacturer improve overall profitability by reducing the degree of inefficient price double marginalization while operated by the manufacturer to constrain the retailer s pricing behavior the direct channel may not always be detrimental to the retailer because it will be accompanied by a wholesale price reduction this combination of manufacturer pull and push can benefit the retailer in equilibrium finally we show that the mere threat of introducing the direct channel can increase the manufacturer s negotiated share of cooperative profits even if price efficiency is obtained by using other business practices

the impact of performance based compensation on misreporting abstract this paper examines the effect of ceo compensation contracts on misreporting we find that the sensitivity of the ceo s option portfolio to stock price is significantly positively related to the propensity to misreport we do not find that the sensitivity of other components of ceo compensation i e equity restricted stock long term incentive payouts and salary plus bonus have any significant impact on the propensity to misreport relative to other components of compensation stock options are associated with stronger incentives to misreport because convexity in ceo wealth introduced by stock options limits the downside risk on detection of the misreporting

product diversion to a direct competitor a manufacturer will often limit competition among downstream partners by authorizing only a select group of retailers to carry its product however it is not uncommon for authorized retailers to create an additional competitor by diverting units to an unauthorized seller this paper presents an analytical model that demonstrates how diversion from authorized retailers to an unauthorized direct competitor can occur under circumstances not considered by the prior literature in fact diversion can represent a prisoner s dilemma whereby retailers diminish their own profit by selling to the unauthorized direct seller the authorized retailer s profit loss actually increases as the per unit diversion costs incurred by the authorized retailer decrease the model also shows that the unauthorized direct seller earns greater profit by strategically procuring a unilaterally constraining quantity even though this procurement strategy results in an equivalent increase in the quantity sold by the retailers combined the results identify a new reason for diversion and its consequences for retailers and the unauthorized direct seller

has the information content of quarterly earnings announcements declined in the past three decades this paper examines changes in the information content of earnings over the past three decades using the two metrics from beaver 1968 abnormal trading volume and abnormal return volatility we find no evidence of a decline in the information content of earnings announcements over the past three decades as measured by both abnormal trading volume and return volatility around quarterly earnings announcements if anything our results suggest an increase over time in the informativeness of quarterly earnings announcements variables reflecting changes in firm specific factors account for a portion of the observed increase

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

characteristics of firms correcting previously reported quarterly earnings abstract this paper analyzes economic characteristics of firms that correct previously reported quarterly earnings the basic findings are that relative to their industry the sample correcting firms are smaller less profitable have higher debt are slower growing and face more serious uncertainties their average stock returns between the issuance of erroneous quarterly reports and their correction are negative also correction disclosure frequently precedes sec or stockholder suits against firm management results are consistent with predictions based on the economic interests of management and their auditors

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

competition and cooperation in marketing channel choice theory and application this paper discusses the problem of choosing a vertical marketing channel in a product differentiated duopolistic market firms choose product price and the form of the marketing channel to maximize profits it is shown that integration of the marketing function results in greater price competition and lower prices than does the use of independent marketing middlemen the profitability of reducing price competition by using such middlemen is investigated two hypotheses that integration is negatively associated with the products substitutability and that symmetric channel structures are stable are tested in a preliminary way and supported with survey data from the international semiconductor industry

predicting accounting misconduct the role of firm level investor optimism motivated by a large literature on how firm specific resources such as leadership and management skills strategies organizational capabilities and intellectual properties drive firm performance we propose and find that heterogeneity in investor optimism regarding firm specific attributes plays a very important role in influencing the managerial propensity to manipulate financial statements when firm level investor optimism is moderate the incidence of accounting misconduct increases but it decreases when investors are highly optimistic further market reaction to the announcement of financial restatements is more negative when investors held more optimistic firm specific beliefs at the time of initial misstatement these findings are robust to alternative firm specific optimism measures linked to analysts general investors and unsophisticated individual investors controls for market wide consumer sentiment unexplained by macroeconomic factors economy wide and industry level optimism potential selection bias and reverse causality our analysis highlights the importance of firm level investor optimism in predicting preventing and detecting accounting misconduct

the governance of exclusive territories when dealers can bootleg a transaction cost approach is used to investigate a manufacturer s policy towards exclusive territory dealers who bootleg sell across their assigned territories we show that optimal enforcement policies will generally tolerate some level of bootlegging this tolerance is a natural consequence of the transaction cost principle that institutional arrangements are not fully enforceable and that self enforcing implicit agreements will require some degree of tolerance the actual degree of tolerance is determined by a the importance of reseller services b the reduction in margin realized from surreptitious sales and c the resellers beliefs about the manufacturer s long run commitment to the channel we also show that deploying exclusive territories is beneficial to the manufacturer because it safeguards reseller services and permits resellers to capitalize on their superior local information however the latter effect is contingent on being able to convince resellers of the manufacturer s long r

do bank regulations affect board independence a cross country analysis abstract based on the hand collected board structure data of 277 listed banks across 55 countries and the bank regulation and supervision database compiled by the world bank this paper provides the first cross country assessment of the impacts of bank regulations on board independence of banks in line with beck et al 2006 we examine the effects of two types of regulation policies the first involving the empowerment of supervisory agencies to monitor and discipline banks directly and the second focusing on encouraging private monitoring of banks through requiring disclosure of more accurate and complete information we find that empowering official supervisory agencies to discipline banks directly reduces board independence but encouraging private sector monitoring of banks increases it the findings suggest that the first type of regulations tends to crowd out the internal governance of banks while the second crowds in it we also find that the legal system with better investor rights protection and better contracts enforcement not only increases board independence but also enhances the crowding in effect of promoting private monitoring and decreases the crowding out effect of direct official supervision on board independence

optimal and approximate policies in multiperiod multilocation inventory models with transshipments this paper examines the effects on the optimal ordering policy and its cost of allowing for interactions among retail outlets specifically transshipments are allowed as recourse actions occurring after demands are realized but before they must be satisfied the resultant savings in holding and shortage costs are balanced against the costs of transshipment a base stock ordering policy is optimal for this model if the final period base stock order up to point is nonnegative then it will be the base stock order up to point for all periods unfortunately it can be found analytically only for two special cases where either the cost parameters are equal at every outlet or there are only two outlets these two special cases are used to validate a heuristic solution technique employing monte carlo integration which is then compared to an easily calculated base policy in order to gauge the contribution of this model the additional savings from using this heuristic policy are significant particularly for problems with many retail outlets and low transshipment costs

free riding and sales strategies for the internet for many products internet sales can free ride oi of the promotional eiort exerted by brick and mortar retailers leading manufacturers to attempt to control the availability and pricing of their products over the internet we examine three categories of products fragrances dvd players and side by side refrigerators our evidence suggests that manufacturers that limit distribution in the physical world use various mechanisms to limit distribution online in particular these manufacturers generally prevent the sale of their products by internet retailers that oier deep discounts furthermore manufacturer websites tend to charge high prices suggesting that manufacturers may internalize free rider issues i introduction while internet sales total only about 1 0 of all retail sales in the united states 1 the rapid growth of internet commerce suggests that this sales channel will become a signi cant factor for many goods managing channel con ict between brick and mortar retailers and internet retailers is an important and growing problem faced by many manufacturers of branded goods manufacturers of branded goods have placed a variety of restrictions on their brick and mortar retailers in an eiort to control freeriding on the sales and promotional eiorts of retailers the emergence of the internet as a new distribution channel requires manufacturers to develop restrictions on internet retailers to control free riding in this paper we investigate empirically the extent to which manufacturers of three types of branded goods appear to control the pricing and

competing across technology differentiated channels the impact of network externalities and switching costs technology driven commerce channels such as the web possess several unique features that differentiate them from traditional channels the interaction between firms operating across these differentiated channels involves interesting competitive dynamics that cannot be captured by isolated models of electronic markets this paper develops a stylized spatial differentiation model to examine the impact of differences in channel flexibility network externalities and switching costs on competition between online traditional and hybrid firms a basic model highlighting the moderating influence of the hybrid firm on both channels is extended to account for differential network externalities and switching costs across the two channels our analysis indicates that while network effects as well as switching costs lead to the tipping of markets such tipping occurs primarily due to the moderating effects of the competing channel more importantly with network effects an increased market share does not translate into higher profits contradictory to conventional wisdom our results indicate that in a static market consumers rather than firms benefit from increasing network externalities with competitive effects outweighing the surplus extraction abilities of firms our results also highlight the importance of alternative revenue streams and provide insights for firms grappling with issues of channel choice as well as integration and divestiture

an empirical analysis of territorial encroachment within franchised and company owned branded chains franchisees within large branded chains loudly complain of a form of channel conflict known as encroachment or impact encroachment occurs when franchisors add new units of their brand proximately to their franchisees existing units franchisees claim that their revenues have substantially decreased as a result of encroaching same brand entry the topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers yet until now evidence of encroachment has been strictly anecdotal this paper provides the first systematic evidence of encroachment using revenue data from the texas lodging industry in the 1990s i find that when franchisors approve new same brand units in the vicinity of incumbent units these new units cannibalize the incumbents revenues in contrast to the result for franchisors the addition of a new unit by company owned brands in the vicinity of same brand units is associated with an increase in the incumbents revenues this contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion this finding informs theory on governance forms and exclusive territories implications for practitioners and policy are also discussed