on the patterns and wealth effects of vertical mergers we use industry commodity flows information to measure vertical relations in completed mergers from 1962 to 1996 almost one third of the mergers display vertical relatedness vertical merger activity is more intensive in the 1980s and 1990s and less so in the 1960s and the 1970s vertical mergers generate positive wealth effects that are significantly larger than those for diversifying mergers the wealth effects in vertical mergers are comparable to those in pure horizontal mergers

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

the impact of sharing customer returns information in a supply chain with and without a buyback policy in this paper we examine a single period problem in a supply chain in which a stackelberg manufacturer supplies a product to a retailer who faces customer returns and demand uncertainty we show that the manufacturer incurs a significant profit loss with and without a buyback policy if it fails to account for customer returns in the wholesale price decision under the assumption that the retailer is better informed than the manufacturer on customer returns information we show that without a buyback policy the retailer prefers not to share if the manufacturer overestimates while it prefers to share customer returns information if the manufacturer underestimates this information if the manufacturer offers a buyback policy we have the opposite results we also discuss incentives to share the customer returns information and some of the issues that are raised in sharing this information

valuation of bankrupt firms this study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management s published cash flow projections we estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value we find that these methods generally yield unbiased estimates of value but the dispersion of valuation errors is very widethe sample ratio of estimated value to market value varies from less than 20 to greater than 250 cross sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders incentives to overstate or understate the firm s value

analysis of the impact of price sensitivity factors on the returns policy in coordinating supply chain this paper analyzes the impact of price sensitivity factors on characteristics of returns policy contracts in a single period product supply chain the contract considers stochastic and price dependent demand we present an analytical model and then use numerical methods with the stackelberg game to identify the contract properties we numerically show that a returns policy indeed improves supply chain performance however the benefits earned from the returns policy under price sensitive and variable demand are different for different supply chain partners first when price sensitivity is high profit of the manufacturer decreases with increase in demand variability second when price sensitivity is sufficiently high and demand variability increases the manufacturer has to surrender part of the profits to the retailer in order to continue sales however even after surrendering part of the profits to the retailer the manufacturer still earns profits that are higher than those available in a wholesale price contract last from the perspective of division of channel profits the retailer is always worse off in case of returns policies than in a wholesale price contract therefore to apply this form of incentive in practice managements should consider the impact of price sensitivity on the returns policy and its performance

demand uncertainty and returns policies for a seasonal product an alternative model abstract marvel and peck international economic review 36 1995 691 714 considered the following seasonal product problem a manufacturer sets wholesale price p w unit and return credit r unit the retailer then sets retailer price p r unit and order quantity q how should the manufacturer set p w and r demand uncertainty consists of two components valuation and customers arrivals our more realistic models reveal effects unobservable from marvel peck s e g i setting r 0 benefits the manufacturer much more than the retailer ii valuation but not customer arrival uncertainty is imperative for the retailer without it the manufacturer can set p w and r such that he reaps most of the profits

do bad bidders become good targets this paper empirically examines one motive for takeovers to change control of firms that make acquisitions that diminish the value of their equity firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value and firms that do not become takeover targets make acquisitions that raise their equity value within the sample of acquisition by targets the acquisitions that reduce equity value the most are those that are later divested either in bust up takeovers or restructuring programs to thwart the takeover this evidence is consistent with theories advanced by marris manne and jensen concerning the disciplinary role played by takeovers

agency conflicts in public and negotiated transfers of corporate control we analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners and show that the transaction mode is important negotiated block trades preserve a low level of ownership concentration inducing more inefficient extraction of private benefits in contrast public acquisitions increase ownership concentration resulting in fewer private benefits and higher firm value within our model the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders free riding behavior we also explore the regulatory implications of this agency problem and its impact on the terms of block trades

collars and renegotiation in mergers and acquisitions i examine the motivation for and effect of including a collar in a merger agreement the most important cross sectional determinants of the bid structure cash vs stock and whether to include a collar are the market related stock return standard deviations for the bidder and target this evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder s offer changes materially relative to the value of the target during the bid period an important decision made during merger or takeover negotiations is the method of payment to be offered to target shareholders takeover bids can be made in cash and or some combination of securities issued by the bidding firm a considerable number of papers in the finance literature provide empirical evidence on the determinants of the choice between stock and cash as the method of payment including carleton et al 1983 niden 1986 crawford 1987 auerbach and reishus 1988 amihud lev and travlos 1990 chaney lovata and philipich 1991 and martin 1996 however this literature typically ignores the increasing fraction 20 in recent years of stock merger bids that contain a collar while an ordinary stock merger bid specifies the number of bidder shares offered as consideration for each target share the exchange ratio a collar bid provides for certain changes in the exchange ratio conditional on the level of the bidder s stock price around the effective date of the merger often insulating target stockholders from volatility in the bidder s stock price and promising a cash like payoff at the end of the bid period collar bids come in two basic forms the first which i call fixed exchange fex specifies a constant exchange ratio over a range of bidder stock prices with adjustment to the ratio outside those bounds an example of this type of transaction is the merger agreement announced on january 17 1994 between

the effect of risk aversion on distribution channel contracts implications for return policies the return policy is often used in retailing supply chains however it is controversial in judging their practical value in the literature various theoretical and modeling explanations of why the return policy is used in practice and is preferred by the retailer and manufacturer have been put forth the literature focusing on the channel agents risk attitudes to explain the adoption seems to have led to the conclusion that the two agents preferences for adopting the full return policy over the no return policy are always in conflict and thus the risk attitudes do not explain the adoption of return policy in practice in this paper we reinvestigate this issue we first identify two distinct phases of risk averseness high or low for each of the two agents we show distinct behaviors of how the wholesale price and order size are set in each phase then we show that the full return policy can be preferred over the no return policy by both the agents if both of them are high risk averse this implies that the agents risk attitudes can explain the adoption of return policy this is a new theoretical result which is contrary to the existing understanding in the literature our result highlights the importance and intricacy of channel policies especially when the risk attitudes of agents are considered

manufacturer s return policy in a two stage supply chain with two risk averse retailers and random demand abstract this paper studies the manufacturer s return policy and the retailers decisions in a supply chain consisting of one manufacturer and two risk averse retailers under a single period setting with price sensitive random demand we characterize each retailer s risk embedded objective via conditional value at risk and construct manufacturer stackelberg games with and without horizontal price competition between the retailers we explore through numerical studies the effects of the retailers aversion to risk and other parameters on the manufacturer s return policy and profit and the retailers decisions we further investigate the effect of distribution asymmetry by comparing the results with normal and lognormal demand

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

returns policy new model introduction and consumer welfare abstract this paper investigates how economic outcomes differ for new model introduction between two extreme contracts outright sales contract and returns policy contract with full credit under the outright sales contract we show that the retailer s incentive to introduce a new model can lead to a reduction of consumer welfare when the retailer is moderately risk averse the primary conclusion from this study is that the returns policy contract resolves this conflict between firms and consumers and that the supply chain introduces the new model only when consumer surplus from the new model is higher than that from the old model

games of perfect information predatory pricing and the chain store paradox the thesis of this paper is that finite noncooperative games possessing both complete and perfect information ought to be treated like one player decision problems that is players ought to assign at every move subjective probabilities to every subsequent choice in the game and ought to make decisions via backward induction this view is in contrast with the gametheoretic approach of nash equilibrium after expanding on this view for games in the abstract in sections 2 and 3 attention is turned in section 4 to an example due to reinhard selten called the chain store paradox which possesses the flavor of a situation involving a predatory pricing monopolist it is argued that for the chain store game the decision analytic approach leads under certain assumptions to more realistic outcomes than the standard nash equilibrium approach

do tender offers create value new methods and evidence abstract conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand alone value to address these biases we develop the probability scaling method which rescales announcement date returns and the intervention method which uses returns at intervening events perceived value improvements are larger than traditional methods indicate we cannot reject the hypothesis that bidders on average pay fair prices combined bidder target stock returns are higher for hostile offers lower for equity offers and lower for diversifying offers these effects reflect revelation about bidder stand alone value not differences in gains from combination

executive overconfidence and compensation structure we examine the impact of overconfidence on compensation structure our findings support the exploitation hypothesis firms offer incentive heavy compensation contracts to overconfident chief executive officers ceos to exploit their positively biased views of firm prospects overconfident ceos receive more option intensive compensation and this relation increases with ceo bargaining power exogenous shocks sarbanes oxley act of 2002 sox and financial accounting standard fas 123r provide additional support for the findings overconfident non ceo executives also receive more incentive based pay independent of ceo overconfidence buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence

on the effects of group identity in strategic environments abstract we examine differences in behavior between subjects interacting with a member of either the same or different identity group in both a centipede game and a series of stag hunt games we find evidence that subjects interacting with outgroup members are more likely to behave as though best responding to uniform randomization of the partner we conclude that group identity not only affects player s social preferences as identified in earlier research but also affects the decision making process independent of changes in the utility function

on returns policies with exogenous price we contribute to current research on single period returns policies by making a clear distinction between models in which transfer price is exogenous and models in which one dominant party unilaterally declares a price we compare the equilibrium contracts that result from these two approaches and derive conditions for the equilibrium returns policy to be pareto efficient when transfer price is exogenous our main result is distribution free but we make some interesting observations on channel performance when demand is uniformly distributed

note the role of returns policies in pricing and inventory decisions for catalogue goods manufacturers often use returns policies to encourage retailers to stock and price items more aggressively we focus on the effect that such policies have on both a retailer s and a manufacturer s profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item such a commitment is often necessary for retailers who sell primarily through catalogues

inefficiencies and externalities from opportunistic acquirers abstract if opportunistic acquirers can buy targets using overvalued shares then there is an inefficiency in the merger and acquisition m a market the most overvalued rather than the highest synergy bidder may buy the target we quantify this inefficiency using a structural estimation approach we find that the m a market allocates resources efficiently on average opportunistic bidders crowd out high synergy bidders in only 7 of transactions resulting in an average synergy loss equal to 9 of the target s value in these inefficient deals the implied average loss across all deals is 0 63 although the inefficiency is small on average it is large for certain deals and it is larger when misvaluation is more likely even when opportunistic bidders lose the contest they drive up prices imposing a large negative externality on the winning synergistic bidders

iterated reasoning and welfare enhancing instruments in the centipede game abstract this paper investigates the effectiveness of two instruments designed to defer termination in the centipede game an insurance against termination by the opponent and an option to offer the opponent a bonus for not terminating the game the rational prediction in both cases is passing until close to the end empirically however only the bonus option is used by the subjects the results indicate that subjects readily understand the strategic effect of the bonus which once offered renders passing until close to the end the strictly dominant strategy for both players yet they fail to realise the slightly more involved strategic signal entailed in the insurance namely that passing until close to the end is a strictly dominant strategy for an insured player the results are compatible with the common finding that the majority of people exhibit only a limited degree of iterated reasoning

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

markup pricing in mergers and acquisitions this paper studies the relation between the premiums in takeover bids involving exchange listed target firms from 1975 91 and the pre announcement stock price runups the evidence shows that the pre bid runup and the postannouncement increase in the target s stock price the markup are generally uncorrelated with little substitution between the runup and the markup the runup is an added cost to the bidder this finding has important implications for assessing the costs of insider trading it also raises interesting questions about the role of information from public capital markets in private takeover negotiations