This paper studies the optimal piecewise procurement of a large-scale project. In the unique Markov Perfect Equilibrium (MPE) of the dynamic procurement game, it is found that (1) unlike the static setting, the procurer's optimal strategy depends on the number of suppliers and more importantly, it is nonmonotonic. As one more supplier participates in the procurement auction, the procurer softens competition in the initial stages by including more cost “types” while increasing competition in the mature stages; (2) this, in turn, implies that existing suppliers might favor participation of additional suppliers; (3) absent scheduling and/or resource constraints, the procurer prefers to procure the project as one piece if the suppliers' technology exhibits constant or increasing returns, and no additional suppliers are enticed to bid; and (4) the optimal dynamic mechanism can be easily implemented via a sequence of dominant strategy auctions of the Vickrey type.
We study the channels through which private information affects the competitive position of firms in the marketplace. Firms try to gain a competitive advantage via strategic investments in cost reduction or demand improving effort in an uncertain context. It is found that, under regularity conditions, an improvement in the information precision of a firm has always a favorable impact in its competitive position and profitability. The rivals are hurt if the market is characterized by quantity competition but favored if price competition prevails. A better informed competitor is thus a ‘nicer’ competitor under Bertrand competition but the opposite happens under Cournot competition.
This paper examines the impact on acquiring firm shareholder wealth of mergers during the oligopoly merger wave of the 1920s. These acquisitions were relatively unregulated; the Securities and Exchange Commission did not exist and antitrust laws were only loosely enforced. Although the lack of financial market controls and the possibility of monopoly gains should have permitted acquiring companies to capture large take-over profits, stock price data on 134 firms indicate only modest success. The average profitability of an acquisition in the 1920s does not differ from the profitability resulting from mergers in the 1960s and 1970s, despite vast differences in the economic environments.
We examine the determinants and effects of technology acquisition licensing using firm-level data between 1957 and 1970. Our results indicate that in technology acquisition licensing, the government screened a firm's application based on (i) the industry that the firm belonged to and (ii) its past experience of technology acquisition. As a result, inefficient firms with considerable experience tended to acquire more technologies before deregulation. Despite this screening process, the technology acquisition policy contributes to improve a firm performance: The firms with acquired technology succeeded in capital accumulation, which results in much faster growth of labor productivity.
Earlier, in a time-series study of the profit rates of Japanese manufacturing firms, Odagiri and Yamawaki concluded that profits persist. With the addition of 15 more years of data up to 1997, this conclusion is shown to stand the test of time. In particular, those firms estimated to earn higher-than-average long-run profit rates in the early study were again estimated to earn higher-than-average long-run profit rates. The force of convergence was also found to be at work; for instance, the firms most profitable in Period 1 (1964–82) were most likely to face a decline in estimated long-run profit rates from Period 1 to Period 2 (1983–97). With the use of two sets of data, the firm’s profit performance was found to be positively related to measures of market share. First, among a smaller sample of firms for which reliable market share data could be matched, market share was estimated to have a significant positive effect on long-run profit rate in either period. Secondly, among the entire sample of 357 firms, the long-run profit rate in either period was estimated to be positively associated with firm sales relative to industry sales, which presumably is a crude measure of market share.
This paper estimates the speed at which local banking market concentration adjusts to its long-run equilibrium level. Long-run market concentration is estimated as a function of the attractiveness of entry and regulatory barriers to entry into the market. The speed of adjustment is allowed to vary across markets and depends on the deviation of market from normal profits. The empirical results from panels of data over 5, 10, 15 and 20 years show that concentration levels in local banking markets adjust slowly over time. Markets with unusually high or low profits show significantly more rapid adjustment than other markets over shorter time periods, but the differences are small in magnitude. Legal barriers to entry significantly impede market adjustment over longer time periods.
The short run interaction between capacity utilization and the price-cost margin is investigated. The findings indicate that the emergence of unplanned excess capacity will in most cases provoke an initial narrowing of the price-cost margin. However, the price-cost margin will often rise again when the excess capacity lasts for an extended time period. The total response is still likely to be a decrease of the price-cost margin.
A micro-database that tracks individual establishments (plants) in the Canadian manufacturing sector through the 1970s is used to analyse the productivity growth slowdown and partial recovery that occurred over that decade. The data allow us to distinguish between the performance within individual plants and ‘structural’ changes, such as entry and exit and intra- and inter-industry shifts in the distribution of output as contributing factors to changes in productivity growth. The main finding is that fluctuations within plants were responsible for nearly all of the slowdown, and for most of the partial recovery, though the latter was also helped by a reallocation of output shares within manufacturing towards lower cost industries.
Duration analysis is employed to examine the survival of 252 foreign manufacturing plants in the UK Northern region during 1970–93. Contrary to expectations, the hazard function is approximately inverse quadratic rather than monotonic decreasing. Greenfield entrants face a lower risk of failure than acquisition entrants, particularly early in life. Acquisitions of older plants exhibit stronger survival than acquisitions of recently established plants, so that the age of (indigenous) acquired plant at the point of foreign takeover appears to matter to the survival of acquisition entrants. Plant size and industrial concentration also emerge as important. Home country of parent firm and location within region are unimportant. Consistent with the inverse U-shaped hazard function, the lognormal regression model provides a reasonably satisfactory fit to the data, certainly tighter than the Weibull model.
We estimate probability and size of price change conditional upon the deviation of a price from its target level for a large number of individual wholesale and consumer price indices in Japan. We find robust and strong asymmetry in price adjustments, especially among CPIs. Cross section variations in price responsiveness depend upon characteristics of distribution channels, in particular, efficiency and input measures of distributive services. Using a simulation model, we also find that the macroscopic downward rigidity almost disappears if the size of the shock is small compared to the target inflation rate.
This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results are consistent with the view that the market for corporate control disciplines poorly performing companies, and suggest that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of 25%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free-cash-flow theory of takeovers.
In this paper, we propose a new method to estimate mark-ups over marginal cost at the firm level. This method is based on the identity between the short-run elasticity of output to inputs, the mark-up rate, and the factor shares. We then apply this method to a panel of Japanese firms in 21 industries over 24 years. We have three main results. First, there is strong evidence of imperfect competition in this panel, in which internationally competitive industries show low mark-ups. Second, the mark-up rate differs considerably among firms and its distribution is skewed. Third, the mark-up rate over marginal cost shows strong procyclicality, and its sensitivity is uniform within the industry.
This paper examines data on the turnover of the five top ranked firms in 54 three-digit manufacturing industries in the UK over the period 1979–1986. Two benchmarks are developed to help to decide whether observed turnover rates are “high” or “low”. As it turns out, actual turnover rates are considerably lower than those generated by both of them, suggesting that market structures in the UK are relatively rigid. A model of firm growth rates is estimated to cast some light on why turnover rates are relatively low, and the results suggest that high advertising and innovation rates amongst top ranked firms help to preserve their place in the top five ranking, despite the fact that firm size displays a weak tendency to regress towards the mean.
This paper considers the effects of the first two years of the current Conservative government as reflected in the change (if any) in the characteristics of bankruptcies amongst quoted companies. It applies a probit model to a sample of bankrupt and non-bankrupt quoted companies drawn from the period 1976–81 a sample subsequently broken up into Labour and Conservative subsamples. Using return on assets, size, gearing, the ratio of equity cash flow to sales, the ratio of direct exports to sales, and industry growth, as explanatory variables of bankruptcy risk and adopting a relativistic view of bankruptcy, the paper finds that the change from a Labour to a Conservative government in 1979 seems to have had no effect on the way in which relative performance, at both the firm and industry level (as measured using the six variables mentioned above) translates into bankruptcy risk.
The motivation of this paper is to add new, large sample evidence on the extent to which the likelihood of business failure or success is related to relationships between parent firms and their 'off-spring'. For this purpose we make use of an exhaustive matched employer-employee data set covering the entire Danish private sector in years 1981 to 2000 to study firm entry and exit. Special focus is on spin-offs, a particular group of small entries, which are founded by groups of persons originating from the same former workplace. We estimate a multinomial logit model in order to examine which characteristics of the founders and the parent firms increase the probability of spinning off. Next, we carry out a duration analysis of the subsequent transitions of the spin-offs, and compare their exit risks with those of other entries, which have less strong parent-progeny relationships in terms of worker flows. With respect to entry, poor performance of the parent firm is found to be a key determinant of the decision to spin off. The spin-offs are shown to have a lower death risk than the comparison group, also after controlling for a host of firm and employee characteristics. The exit risks of spin-offs and the comparison group are observed to converge over time. However, when we cater for unobserved heterogeneity the convergence turns out to be predominantly an outcome of selection rather than the result of other start-ups catching up via some learning process. For the entire sample of entries, we find a positive association between size of the entry and survival probability, and a countercyclical sensitivity of exit risk.
This paper estimates sectoral mark-ups in the Spanish economy during the period 1983–1996. The data consists of a large firm level data set that encompasses all sectors of economic activity apart from financial institutions. The time period considered is well suited to assess the pro-competitive effect of economic integration, as Spain’s economy became fully integrated in the EU, which was itself embarking on a massive liberalisation exercise. I find that sectors most exposed to international competition witnessed a significant drop in margins, while those more sheltered from competitive pressures did not. Finally, comparing estimated mark-ups to accounting margins indicates that the latter are a reasonable proxy for margins obtained econometrically.
Do stronger intellectual property rights spur inventive activity and foreign direct investment (FDI) in developing countries? What are the characteristics of industries where strengthening patent rights has the most favorable impact? In an attempt to answer these questions, this paper uses the 1986 Taiwanese patent reforms to examine the effects of strengthening patent rights in a developing economy. I find that the reforms encouraged R&D effort across industries. In addition, industries that were highly R&D intensive witnessed a marked increase in their patenting in the United States. The reforms also induced additional FDI.
This paper examines the questions of whether the incumbent responds to entry and which firms respond to entry in an industry, by using a data sample of the US luxury car market during the period of 1986 and 1997. The statistical analysis finds that the incumbent’s response varies across firms, but some group of firms responds to entry similarly. In particular, this paper finds that the German exporters of luxury cars respond significantly to the entry of a Japanese rival in the US market similarly by reducing their prices and mark-ups. The extent to which they respond to entry become greater as the Japanese firm’s market share increases. The statistical test accepts the hypothesis of the equality of coefficients among the German firms, but rejects the hypothesis when both the German and British firms are included in the sample.