In an unhindered market, firms use their resources to meet the expectations of consumers in productive ways; therefore, competition among firms is inevitable. Those firms that use new technologies and produce efficiently can make a profit. This mechanism is only workable when the right to property would be respected and applied. Although this is an undeniable right of individuals, governments seek to bypass the simple rules of the market even in the case of bankruptcy and reallocation. As a prima facie fact, bankruptcy is one of the outcomes of the market process in a free market. In the absence of the government’s apparatus, firms and creditors are free to continue their businesses or to reach an agreement to defer the timing of payment and conducting the insolvency to pay the debts. In spite of this, governments whose political benefits lead them to use interventionist methods such as securing jobs and subsidizing local businesses, enact modern bankruptcy law to protect the insolvent firms, and give them the opportunity of reconstruction. Iran whose modern bankruptcy law has been prepared is the case study of this article. This article discusses that bankruptcy is part of the normal process of the free market, and rule of law ought to guarantee freedom of parties to negotiate and compensation of the creditors in conclusion. A case study is offered to enlighten that the implementation of modern bankruptcy law would not solve the problems because the main problem is the lack of strengthened property rights.
{"title":"ENFORCING PROPERTY RIGHTS THROUGH THE ELEMENTS OF FREE MARKET; A CASE FOR IRAN’S BANKRUPTCY LAW","authors":"Matin Pedram","doi":"10.2139/ssrn.3630849","DOIUrl":"https://doi.org/10.2139/ssrn.3630849","url":null,"abstract":"In an unhindered market, firms use their resources to meet the expectations of consumers in productive ways; therefore, competition among firms is inevitable. Those firms that use new technologies and produce efficiently can make a profit. This mechanism is only workable when the right to property would be respected and applied. Although this is an undeniable right of individuals, governments seek to bypass the simple rules of the market even in the case of bankruptcy and reallocation. As a prima facie fact, bankruptcy is one of the outcomes of the market process in a free market. In the absence of the government’s apparatus, firms and creditors are free to continue their businesses or to reach an agreement to defer the timing of payment and conducting the insolvency to pay the debts. In spite of this, governments whose political benefits lead them to use interventionist methods such as securing jobs and subsidizing local businesses, enact modern bankruptcy law to protect the insolvent firms, and give them the opportunity of reconstruction. Iran whose modern bankruptcy law has been prepared is the case study of this article. This article discusses that bankruptcy is part of the normal process of the free market, and rule of law ought to guarantee freedom of parties to negotiate and compensation of the creditors in conclusion. A case study is offered to enlighten that the implementation of modern bankruptcy law would not solve the problems because the main problem is the lack of strengthened property rights.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"45 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78465066","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 pioneering empirical study, of the behavior of firms in a differentiated oligopoly, has four contributions. First, it defines clusters of competitive firms based on (a) homogeneity of products, (b) their geographic proximity, (c) the resources available and competence of the management, and/or (d) the strategies they employ to obtain strategic dominance. Second, it was noted that within each cluster, firms seek to stabilize consumer loyalty and/or compete for a higher market share while choosing their strategies. Third, measures of the market power of firms per unit of sales were developed accounting for the inelasticity of demand as well as the market share. Fourth, it was noted that a firm may derive market power over the sales of the firm instead of price-cost margins. The empirical results suggest that a variety of patterns of behavior are discernible within a cluster.
{"title":"Strategic Rivalry and Transient Market Power of Firms","authors":"Ramamohan Rao","doi":"10.2139/ssrn.3790600","DOIUrl":"https://doi.org/10.2139/ssrn.3790600","url":null,"abstract":"This pioneering empirical study, of the behavior of firms in a differentiated oligopoly, has four contributions. First, it defines clusters of competitive firms based on (a) homogeneity of products, (b) their geographic proximity, (c) the resources available and competence of the management, and/or (d) the strategies they employ to obtain strategic dominance. Second, it was noted that within each cluster, firms seek to stabilize consumer loyalty and/or compete for a higher market share while choosing their strategies. Third, measures of the market power of firms per unit of sales were developed accounting for the inelasticity of demand as well as the market share. Fourth, it was noted that a firm may derive market power over the sales of the firm instead of price-cost margins. The empirical results suggest that a variety of patterns of behavior are discernible within a cluster.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"14 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88292067","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}
Philippe Masset, Alexandre Mondoux, Jean‐Philippe Weisskopf
This paper explores the price determinants of fine wines in a competitive and opaque market. Intense international competition, high production costs and information asymmetries, result in Swiss wine prices that mostly depend on collective reputation, production techniques, and product positioning. Following an exogenous currency shock, producers have reacted with a 5% price increase. Finally, a reduction in information asymmetries with the arrival of an influential wine expert on the market had a positive price effect on rated wines and producers. These two findings suggest that wine producers have used this situation to review their wines' pricing and positioning.
{"title":"The Pricing of an Experience Good in a Competitive and Opaque Market","authors":"Philippe Masset, Alexandre Mondoux, Jean‐Philippe Weisskopf","doi":"10.2139/ssrn.3769015","DOIUrl":"https://doi.org/10.2139/ssrn.3769015","url":null,"abstract":"This paper explores the price determinants of fine wines in a competitive and opaque market. Intense international competition, high production costs and information asymmetries, result in Swiss wine prices that mostly depend on collective reputation, production techniques, and product positioning. Following an exogenous currency shock, producers have reacted with a 5% price increase. Finally, a reduction in information asymmetries with the arrival of an influential wine expert on the market had a positive price effect on rated wines and producers. These two findings suggest that wine producers have used this situation to review their wines' pricing and positioning.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"277 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80052762","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}
We study decision-making by a regional authority (RA) that uses enterprise zones to attract members of the creative class---referred to as entrepreneurs---to its region. The enterprise zones provide a local public good (LPG) 𝐿 to entrepreneurs who become members. First, we compute the utility maximizing number of entrepreneurs 𝑁 to attract and the optimal provision level of the LPG. Second, if the LPG 𝐿 is chosen optimally, then, given 𝑁, we determine an expression for the utility of an entrepreneur. Third, we calculate how much an entrepreneur would be willing to pay to become a member of an enterprise zone and then discuss the potential existence of an efficient and revenue-neutral equilibrium. Finally, we comment on some theoretical difficulties stemming from the twin facts that the number of enterprise zones created and the number of entrepreneurs attracted to these zones have to be integers.
{"title":"Using Enterprise Zones to Attract the Creative Class: Some Theoretical Issues","authors":"A. Batabyal, S. Yoo","doi":"10.2139/ssrn.3768919","DOIUrl":"https://doi.org/10.2139/ssrn.3768919","url":null,"abstract":"We study decision-making by a regional authority (RA) that uses enterprise zones to attract members of the creative class---referred to as entrepreneurs---to its region. The enterprise zones provide a local public good (LPG) 𝐿 to entrepreneurs who become members. First, we compute the utility maximizing number of entrepreneurs 𝑁 to attract and the optimal provision level of the LPG. Second, if the LPG 𝐿 is chosen optimally, then, given 𝑁, we determine an expression for the utility of an entrepreneur. Third, we calculate how much an entrepreneur would be willing to pay to become a member of an enterprise zone and then discuss the potential existence of an efficient and revenue-neutral equilibrium. Finally, we comment on some theoretical difficulties stemming from the twin facts that the number of enterprise zones created and the number of entrepreneurs attracted to these zones have to be integers.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79354778","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}
We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high.
{"title":"Going Through The Roof: On Prices for Drugs Sold Through Insurance","authors":"J. Kamphorst, V. Karamychev","doi":"10.2139/ssrn.3766328","DOIUrl":"https://doi.org/10.2139/ssrn.3766328","url":null,"abstract":"We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high.<br>","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"38 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83972708","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}
It is a stylized fact that product prices tend to react faster to an increase in costs of intermediate inputs, than to a decrease. This study uses scanner data of retailers in an emerging economy, Kazakhstan, to analyze how large exchange rate shocks impact consumer prices. Consistent with previous studies, we found an incomplete exchange rate pass-through (ERPT) into consumer prices, even a year after the initial shock. This ERPT, however, is heterogeneous and depends on product type (imported versus domestic), shock size, and retailer size. In particular, ERPT is higher for imported products (50%) than for domestic products (25%); ERPT is also non-linear and higher for large retailers. Distinguishing the impacts of appreciation and depreciation reveals that ERPT is asymmetric and the direction of asymmetry is opposite for imported and domestic products. Our findings suggest that domestic producers may be keen on preserving the market share while foreign manufacturers may be more concerned with increasing markup.
{"title":"Do Prices Rise Faster Than They Fall? Evidence From Scanner Data","authors":"I. Kim, J. Konings, Jinhyuk Lee","doi":"10.2139/ssrn.3762353","DOIUrl":"https://doi.org/10.2139/ssrn.3762353","url":null,"abstract":"It is a stylized fact that product prices tend to react faster to an increase in costs of intermediate inputs, than to a decrease. This study uses scanner data of retailers in an emerging economy, Kazakhstan, to analyze how large exchange rate shocks impact consumer prices. Consistent with previous studies, we found an incomplete exchange rate pass-through (ERPT) into consumer prices, even a year after the initial shock. This ERPT, however, is heterogeneous and depends on product type (imported versus domestic), shock size, and retailer size. In particular, ERPT is higher for imported products (50%) than for domestic products (25%); ERPT is also non-linear and higher for large retailers. Distinguishing the impacts of appreciation and depreciation reveals that ERPT is asymmetric and the direction of asymmetry is opposite for imported and domestic products. Our findings suggest that domestic producers may be keen on preserving the market share while foreign manufacturers may be more concerned with increasing markup.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"37 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83064542","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}
Multi-channel sales strategies have become common due to the usage of advanced information technologies. Yet, how one trading mechanism can influence the outcome of another, especially in the B2B market, is largely underexplored. This paper investigates the effect of price and quantity information from a pre-sales posted price channel on the performance of the century-old sequential Dutch auctions system. The pre-sales channel is conducted online preceding the auctions. Sellers can control the price and make a proportion of their stock available in the pre-sales. Anything left after the pre-sales is sold via the auctions. Our analysis of nearly 1.5 million flower lots reveals a positive effect where there are higher auction prices and total revenue for lots listed in the pre-sales than for lots that are not. The result holds even for lots with no actual sales in the pre-sales, indicating that buyers pay close attention to the additional information from the pre-sales posted price channel. By teasing out the information effect of pre-sales prices and pre-sales quantity on the auction prices, we evaluate a number of pricing strategies. The results suggest that selling at a high price in the pre-sales is still more beneficial than selling more by discounting prices.
{"title":"The Effect of Posted Prices on Auction Prices: An Empirical Investigation of a Multi-channel B2B Market","authors":"May Truong, Alok Gupta, W. Ketter, E. van Heck","doi":"10.2139/ssrn.3761855","DOIUrl":"https://doi.org/10.2139/ssrn.3761855","url":null,"abstract":"Multi-channel sales strategies have become common due to the usage of advanced information technologies. Yet, how one trading mechanism can influence the outcome of another, especially in the B2B market, is largely underexplored. This paper investigates the effect of price and quantity information from a pre-sales posted price channel on the performance of the century-old sequential Dutch auctions system. The pre-sales channel is conducted online preceding the auctions. Sellers can control the price and make a proportion of their stock available in the pre-sales. Anything left after the pre-sales is sold via the auctions. Our analysis of nearly 1.5 million flower lots reveals a positive effect where there are higher auction prices and total revenue for lots listed in the pre-sales than for lots that are not. The result holds even for lots with no actual sales in the pre-sales, indicating that buyers pay close attention to the additional information from the pre-sales posted price channel. By teasing out the information effect of pre-sales prices and pre-sales quantity on the auction prices, we evaluate a number of pricing strategies. The results suggest that selling at a high price in the pre-sales is still more beneficial than selling more by discounting prices.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"112 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78958510","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 develops a framework to systematically study how changes in market conditions affect the equilibrium inequality between heterogeneous agents. By stating our setting as a "competition for market shares", we can derive inequality predictions for vastly different competition models. This approach allows us to identify a common structure, e.g., in monopolistic competition, perfect competition, or competition for prizes, that explains why these models deliver similar inequality predictions. We apply our results to problems from trade, competition theory, consumption inequality, political economics and marketing, and relate some of the predicted inequality patterns to empirical evidence.
{"title":"Inequality in Models with a Competition for Market Shares","authors":"A. Hefti, Julian Teichgräber","doi":"10.2139/ssrn.3762387","DOIUrl":"https://doi.org/10.2139/ssrn.3762387","url":null,"abstract":"This paper develops a framework to systematically study how changes in market conditions affect the equilibrium inequality between heterogeneous agents. By stating our setting as a \"competition for market shares\", we can derive inequality predictions for vastly different competition models. This approach allows us to identify a common structure, e.g., in monopolistic competition, perfect competition, or competition for prizes, that explains why these models deliver similar inequality predictions. We apply our results to problems from trade, competition theory, consumption inequality, political economics and marketing, and relate some of the predicted inequality patterns to empirical evidence.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"39 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86230261","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 study examines the impact of an ex-ante control mechanisms on opportunistic behavior and ex-post transaction costs, as well as how this leads to relationship termination intention. Data gathered from 211 companies in South Korea that have installed and run outsourced vending machines is analyzed and used to validate the article's theoretical and empirical contributions. The findings show that contractual completeness has a negative and direct effect on both active and passive opportunism. The study also discovers that active opportunism has a positive effect on both bargaining costs and monitoring costs, whereas passive opportunism has a positive and direct effect on maladaption costs but a negative effect on monitoring costs. Both bargaining and maladaption costs have a positive and direct effect on relationship termination intention, while monitoring costs have a negative effect on same. Furthermore, alternative attractiveness moderates the relationships between bargaining costs and relationship termination intention as well as maladaption costs and relationship termination intention. The implication is that contract completeness can function as an important ex-ante control mechanism, whereas the two types of opportunism can raise transaction costs. Alternative attractiveness is identified as a driver of the impact of transaction costs on relationship termination intention.
{"title":"Opportunism and Transaction Costs In Inter-Firm Relationships: Antecedent, Consequence, and Moderator","authors":"H. Yi, Minkyung Lee, F. E. Amenuvor","doi":"10.2139/ssrn.3893387","DOIUrl":"https://doi.org/10.2139/ssrn.3893387","url":null,"abstract":"This study examines the impact of an ex-ante control mechanisms on opportunistic behavior and ex-post transaction costs, as well as how this leads to relationship termination intention. Data gathered from 211 companies in South Korea that have installed and run outsourced vending machines is analyzed and used to validate the article's theoretical and empirical contributions. The findings show that contractual completeness has a negative and direct effect on both active and passive opportunism. The study also discovers that active opportunism has a positive effect on both bargaining costs and monitoring costs, whereas passive opportunism has a positive and direct effect on maladaption costs but a negative effect on monitoring costs. Both bargaining and maladaption costs have a positive and direct effect on relationship termination intention, while monitoring costs have a negative effect on same. Furthermore, alternative attractiveness moderates the relationships between bargaining costs and relationship termination intention as well as maladaption costs and relationship termination intention. The implication is that contract completeness can function as an important ex-ante control mechanism, whereas the two types of opportunism can raise transaction costs. Alternative attractiveness is identified as a driver of the impact of transaction costs on relationship termination intention.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"47 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73893425","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}
We conduct a field experiment with remote workers to assess potential adverse effects of monitoring. We find that monitoring reduces the average performance of workers, in particular among the intrinsically motivated workforce. Moreover, monitoring cultivates the average worker: There are fewer high performers and the variance in performance is significantly reduced. Importantly, we show that performance reductions primarily occur among challenging tasks. These performance reductions significantly increase unit costs in our setting. This effect is particularly severe when challenging tasks have high marginal value, as in high-performance work systems or when tasks are complementary inputs into the production function.
{"title":"Adverse Effects of Monitoring: Evidence from a Field Experiment","authors":"Holger Herz, Christian Zihlmann","doi":"10.2139/ssrn.3788710","DOIUrl":"https://doi.org/10.2139/ssrn.3788710","url":null,"abstract":"We conduct a field experiment with remote workers to assess potential adverse effects of monitoring. We find that monitoring reduces the average performance of workers, in particular among the intrinsically motivated workforce. Moreover, monitoring cultivates the average worker: There are fewer high performers and the variance in performance is significantly reduced. Importantly, we show that performance reductions primarily occur among challenging tasks. These performance reductions significantly increase unit costs in our setting. This effect is particularly severe when challenging tasks have high marginal value, as in high-performance work systems or when tasks are complementary inputs into the production function.","PeriodicalId":18516,"journal":{"name":"Microeconomics: Production","volume":"9 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81431635","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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