This paper reports the results of a series of two-stage, two-person non-cooperative games where one player can strategically preempt the other. In one of our designs, the subgame perfect equilibrium entails complete preemption; in the other, it entails partial preemption. Logit analysis indicates that players tend to completely preempt when it is optimal. However, when partial preemption is optimal, a non-trivial fraction of players persist in choosing the non-preemptive structure. This may result because of occasional irrational behavior following preemptive play, which induces some dominant agents to play less aggressively.
{"title":"An Experimental Evaluation of Strategic Preemption","authors":"C. Mason, Owen R. Phillips","doi":"10.2139/ssrn.92594","DOIUrl":"https://doi.org/10.2139/ssrn.92594","url":null,"abstract":"This paper reports the results of a series of two-stage, two-person non-cooperative games where one player can strategically preempt the other. In one of our designs, the subgame perfect equilibrium entails complete preemption; in the other, it entails partial preemption. Logit analysis indicates that players tend to completely preempt when it is optimal. However, when partial preemption is optimal, a non-trivial fraction of players persist in choosing the non-preemptive structure. This may result because of occasional irrational behavior following preemptive play, which induces some dominant agents to play less aggressively.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"553 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123377267","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Input transactions in the petrochemical industry are subject to temporal specificity. That is, non-performance in quantity, such as delaying delivery, is highly costly to producers and can be an effective holdup strategy. Buyers and sellers of petrochemical inputs have been averse to frequent price changes. The aversion to haggling over prices reflects the desire of maintaining stable input supplies critical to production efficiency. In the 1970s, two oil price shocks induced high price volatility in the industry. The price volatility created immense pressures for price adjustments in contracts. The traditional agreements of inflexible prices were destabilized, resulting in widespread disputes and renegotiation. The industry and the time period together create a natural opportunity for examining how governance structures of transactions adapt to price uncertainty. This paper examines in particular the effects of input price uncertainty on vertical integration. Based on plant-level data for U.S. producers of 49 petrochemical products, this study finds that the producers' extents of vertical integration, measured by their degrees of input self-sufficiency, were positively related to input price volatility during the period of the oil price shocks. The positive reaction of vertical integration to input price volatility is attributed to the producers who had the highest expecting costs of supply disruption.
{"title":"Price Uncertainty and Vertical Integration: An Empirical Examination of Petrochemical Firms","authors":"Joseph P. H. Fan","doi":"10.2139/ssrn.80468","DOIUrl":"https://doi.org/10.2139/ssrn.80468","url":null,"abstract":"Input transactions in the petrochemical industry are subject to temporal specificity. That is, non-performance in quantity, such as delaying delivery, is highly costly to producers and can be an effective holdup strategy. Buyers and sellers of petrochemical inputs have been averse to frequent price changes. The aversion to haggling over prices reflects the desire of maintaining stable input supplies critical to production efficiency. In the 1970s, two oil price shocks induced high price volatility in the industry. The price volatility created immense pressures for price adjustments in contracts. The traditional agreements of inflexible prices were destabilized, resulting in widespread disputes and renegotiation. The industry and the time period together create a natural opportunity for examining how governance structures of transactions adapt to price uncertainty. This paper examines in particular the effects of input price uncertainty on vertical integration. Based on plant-level data for U.S. producers of 49 petrochemical products, this study finds that the producers' extents of vertical integration, measured by their degrees of input self-sufficiency, were positively related to input price volatility during the period of the oil price shocks. The positive reaction of vertical integration to input price volatility is attributed to the producers who had the highest expecting costs of supply disruption.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134432470","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent advances in information technology (IT) have enabled firms in many industries to give middle managers new access to timely production data. Process monitoring' technologies give distant managers a window to production which can both lower their cost of monitoring subordinates and provide them better information toward allocating their firms' resources in the short term. This paper investigates where and why IT-based process monitoring is valuable within the trucking industry, distinguishing between its incentive- and coordination-related benefits. Using truck-level data, it examines how the use of on-board computers varies with characteristics of carriers, shippers, and hauls. It then analyzes these patterns in light of existing theory and relates them to how supply chains are organized.
{"title":"Why are Process Monitoring Technologies Valuable? The Use of On-Board Information Technology in the Trucking Industry","authors":"T. Hubbard","doi":"10.2139/ssrn.157152","DOIUrl":"https://doi.org/10.2139/ssrn.157152","url":null,"abstract":"Recent advances in information technology (IT) have enabled firms in many industries to give middle managers new access to timely production data. Process monitoring' technologies give distant managers a window to production which can both lower their cost of monitoring subordinates and provide them better information toward allocating their firms' resources in the short term. This paper investigates where and why IT-based process monitoring is valuable within the trucking industry, distinguishing between its incentive- and coordination-related benefits. Using truck-level data, it examines how the use of on-board computers varies with characteristics of carriers, shippers, and hauls. It then analyzes these patterns in light of existing theory and relates them to how supply chains are organized.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133591676","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we derive estimators of, and closed-form (non-integral) expressions for, the distribution of bids in an extreme value, asymmetric, second-price, private-values auction. In equilibrium, prices (winning bids) and shares (winning probabilities) have a simple monotonic relationship--higher-value firms win more frequently and at better prices than lower-value firms. Since the extreme value distribution is closed under the maximum function, the value of the merged coalition also has an extreme value distribution and thus lies on the same price/share curve. Consequently, merger price effects can be computed as a movement along the price/share curve, from the average pre-merger share to the post-merger aggregate share. The parameter determining how much winning prices change is the standard deviation of the extreme value component. Merger efficiency claims can be benchmarked against the marginal cost reductions necessary to offset merger price effects.
{"title":"Mergers Among Asymmetric Bidders: A Logit Second-Price Auction Model","authors":"Luke M. Froeb, S. Tschantz, P. Crooke","doi":"10.2139/ssrn.69415","DOIUrl":"https://doi.org/10.2139/ssrn.69415","url":null,"abstract":"In this paper, we derive estimators of, and closed-form (non-integral) expressions for, the distribution of bids in an extreme value, asymmetric, second-price, private-values auction. In equilibrium, prices (winning bids) and shares (winning probabilities) have a simple monotonic relationship--higher-value firms win more frequently and at better prices than lower-value firms. Since the extreme value distribution is closed under the maximum function, the value of the merged coalition also has an extreme value distribution and thus lies on the same price/share curve. Consequently, merger price effects can be computed as a movement along the price/share curve, from the average pre-merger share to the post-merger aggregate share. The parameter determining how much winning prices change is the standard deviation of the extreme value component. Merger efficiency claims can be benchmarked against the marginal cost reductions necessary to offset merger price effects.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-02-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121338936","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the labor market for mutual fund managers and managers' responses to the implicit incentives created by their career concerns. We find that managerial turnover is sensitie to a fund's recent performance. Consistent with the hypothesis that fund companies are learning about managers' abilities, managerial turnover is more performance-sensitive for younger fund managers. Interpreting the separation-performance relationship as an incentive scheme, several of our results suggest that a desire to avoid separation may induce managers at different stages of their careers to behave differently. Younger fund managers appear to be given less discretion in the management of their funds; i.e. they are more likely to lose their jobs if their fund's beta or unsystematic risk level deviates from the mean for their fund's objective group. We also show that the shape of the job separation-performance relationship may provide an incentive for young mutual fund managers to be risk averse in selecting their fund's portfolio. Consistent with these implicit labor market incentives, younger fund managers do take on lower unsystematic risk and deviate less from typical behavior than their older counterparts. Finally, additional results on the flow of investments into mutual funds suggest that rather than just being due to a screening process, firing decisions may also be influenced by a desire to stimulate inflows of investment into the fund.
{"title":"Career Concerns of Mutual Fund Managers","authors":"J. Chevalier, Glenn Ellison","doi":"10.2139/ssrn.130990","DOIUrl":"https://doi.org/10.2139/ssrn.130990","url":null,"abstract":"This paper examines the labor market for mutual fund managers and managers' responses to the implicit incentives created by their career concerns. We find that managerial turnover is sensitie to a fund's recent performance. Consistent with the hypothesis that fund companies are learning about managers' abilities, managerial turnover is more performance-sensitive for younger fund managers. Interpreting the separation-performance relationship as an incentive scheme, several of our results suggest that a desire to avoid separation may induce managers at different stages of their careers to behave differently. Younger fund managers appear to be given less discretion in the management of their funds; i.e. they are more likely to lose their jobs if their fund's beta or unsystematic risk level deviates from the mean for their fund's objective group. We also show that the shape of the job separation-performance relationship may provide an incentive for young mutual fund managers to be risk averse in selecting their fund's portfolio. Consistent with these implicit labor market incentives, younger fund managers do take on lower unsystematic risk and deviate less from typical behavior than their older counterparts. Finally, additional results on the flow of investments into mutual funds suggest that rather than just being due to a screening process, firing decisions may also be influenced by a desire to stimulate inflows of investment into the fund.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114205319","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Division of labor has benefits in addition to the direct productivity increases from specialization: In this paper we study how the development of specialized upstream technology suppliers improves access and lowers investment costs for latecomer downstream firms. Using a simple model, we test this idea using comprehensive data on investments in chemical plants in less developed countries (LDCs) during the 1980s. We find that investments in chemical plants in the LDCs are greater, the greater is the number of technology suppliers that operate in the first world. A major contribution of this paper is that we identify an important and understudied mechanism through which technology is made available, with beneficial effects for investment.
{"title":"Division of Labor, Market for Technology and Investment","authors":"Andrea Fosfuri, A. Arora, A. Gambardella","doi":"10.2139/ssrn.150349","DOIUrl":"https://doi.org/10.2139/ssrn.150349","url":null,"abstract":"Division of labor has benefits in addition to the direct productivity increases from specialization: In this paper we study how the development of specialized upstream technology suppliers improves access and lowers investment costs for latecomer downstream firms. Using a simple model, we test this idea using comprehensive data on investments in chemical plants in less developed countries (LDCs) during the 1980s. We find that investments in chemical plants in the LDCs are greater, the greater is the number of technology suppliers that operate in the first world. A major contribution of this paper is that we identify an important and understudied mechanism through which technology is made available, with beneficial effects for investment.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126581754","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent models which claim to provide examples of profitable foreclosure--when a firm weakens competition by reducing its access to customers or inputs--have led to calls for more aggressive antitrust activity by courts and regulators. However, we show that the alleged anticompetitive behavior of these models is either typical of competition or simply implausible. In addition, even if foreclosure occurs, it is almost always confined to the short run, and its efficiency consequences are commonly ambiguous. As a result, the new literature on foreclosure provides little impetus for intervention by poorly informed regulators. In most of the models examined, the "foreclosing" firm earns profits equal to its cost advantage as is typical of Bertrand competition, or makes profits because it was an early investor/innovator. Such profits can hardly be considered anticompetitive, and in any case can rarely be maintained beyond the short run. In addition, in many of these models vertical coordination increases efficiency, so even if foreclosure occurs, overall efficiency could improve. In the remaining models foreclosure obtains because the incumbent, but not entrants, can coordinate buyers. Only allowing incumbents this privilege is implausible, except perhaps in the short term.
{"title":"New Models of Foreclosure: Should Antitrust Authorities Be Concerned?","authors":"H. Ergas, E. Ralph","doi":"10.2139/ssrn.55775","DOIUrl":"https://doi.org/10.2139/ssrn.55775","url":null,"abstract":"Recent models which claim to provide examples of profitable foreclosure--when a firm weakens competition by reducing its access to customers or inputs--have led to calls for more aggressive antitrust activity by courts and regulators. However, we show that the alleged anticompetitive behavior of these models is either typical of competition or simply implausible. In addition, even if foreclosure occurs, it is almost always confined to the short run, and its efficiency consequences are commonly ambiguous. As a result, the new literature on foreclosure provides little impetus for intervention by poorly informed regulators. In most of the models examined, the \"foreclosing\" firm earns profits equal to its cost advantage as is typical of Bertrand competition, or makes profits because it was an early investor/innovator. Such profits can hardly be considered anticompetitive, and in any case can rarely be maintained beyond the short run. In addition, in many of these models vertical coordination increases efficiency, so even if foreclosure occurs, overall efficiency could improve. In the remaining models foreclosure obtains because the incumbent, but not entrants, can coordinate buyers. Only allowing incumbents this privilege is implausible, except perhaps in the short term.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132146240","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
As tariffs and quotas have gradually declined, the importance of regulation as a source of trade distortions has increased. Consequently, trade negotiations and the enforcement of trade treaties have increasingly focused on regulatory policies. This essay discusses the role of regulatory reform as part of trade liberalization policy, with illustrations drawn from the recent experiences of Egypt.
{"title":"The International Dimension of Regulatory Reform with Applications to Egypt","authors":"R. Noll","doi":"10.2139/ssrn.55085","DOIUrl":"https://doi.org/10.2139/ssrn.55085","url":null,"abstract":"As tariffs and quotas have gradually declined, the importance of regulation as a source of trade distortions has increased. Consequently, trade negotiations and the enforcement of trade treaties have increasingly focused on regulatory policies. This essay discusses the role of regulatory reform as part of trade liberalization policy, with illustrations drawn from the recent experiences of Egypt.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"105 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-01-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128153296","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper draws on the case study literature on diagnostic imaging, on publicly available industry data, and on the business press. It also incorporates very preliminary findings from interviews and site visits by the author and others at five diagnostic imaging companies, two in the United States and three in Japan. At the companies' request, their identities must currently remain confidential. Some of the company-based research has been supported by the Sloan Foundation through a project entitled "Corporate Restructuring Skill Formation, and Earnings Inequality". The paper unfolds in four sections that mirror the four propositions. Each section summarizes both quantitative trends and case study evidence. The evidence available from published sources, coupled with preliminary interview findings, reveal quite a few interesting patterns, but also leave a great deal unanswered. Consequently, we follow these four sections with a brief conclusion making the case for additional case study research and sketching directions for such future research.
{"title":"The Diagnostic Imaging Equipment Industry: What Prognosis for Good Jobs?","authors":"Chris Tilly, M. Handel","doi":"10.2139/ssrn.125772","DOIUrl":"https://doi.org/10.2139/ssrn.125772","url":null,"abstract":"This paper draws on the case study literature on diagnostic imaging, on publicly available industry data, and on the business press. It also incorporates very preliminary findings from interviews and site visits by the author and others at five diagnostic imaging companies, two in the United States and three in Japan. At the companies' request, their identities must currently remain confidential. Some of the company-based research has been supported by the Sloan Foundation through a project entitled \"Corporate Restructuring Skill Formation, and Earnings Inequality\". The paper unfolds in four sections that mirror the four propositions. Each section summarizes both quantitative trends and case study evidence. The evidence available from published sources, coupled with preliminary interview findings, reveal quite a few interesting patterns, but also leave a great deal unanswered. Consequently, we follow these four sections with a brief conclusion making the case for additional case study research and sketching directions for such future research.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124029739","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent years have seen the introduction of profit comparisons by national tax authorities to cope with multinationals' profit shifting activities. The paper argues that a country which switches from price related transfer pricing rules to profit related measures can reduce imports without changing firms' transfer prices. The trade effect makes the change of transfer pricing rules a potential instrument of protectionism and strategic trade policy.
{"title":"Trade, Multinationals, and Transfer Pricing Regulations","authors":"Guttorm Schjelderup, Alfons J. Weichenrieder","doi":"10.2139/ssrn.74708","DOIUrl":"https://doi.org/10.2139/ssrn.74708","url":null,"abstract":"Recent years have seen the introduction of profit comparisons by national tax authorities to cope with multinationals' profit shifting activities. The paper argues that a country which switches from price related transfer pricing rules to profit related measures can reduce imports without changing firms' transfer prices. The trade effect makes the change of transfer pricing rules a potential instrument of protectionism and strategic trade policy.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122344079","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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