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Richard Schmalensee

Bio: Richard Schmalensee is an academic researcher from Massachusetts Institute of Technology. The author has contributed to research in topics: Emissions trading & Competition (economics). The author has an hindex of 70, co-authored 254 publications receiving 20703 citations. Previous affiliations of Richard Schmalensee include University of California, San Diego & Executive Office of the President of the United States.


Papers
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TL;DR: In this paper, the authors report the results of a cross-section study of differences in accounting profitability that sheds light on some basic controversies in industrial economics and provide estimates of the relative importance of firm, market, and market share differences in the determination of business unit (divisional) profitability in U.S. manufacturing.
Abstract: This essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics. Most previous cross-section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets. As we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly, structural cross-section analysis has fallen out of fashion. In contrast to most of the cross-section literature, the analysis reported here is fundamentally descriptive; it does not attempt directly to estimate or to test hypotheses about structural parameters. I hope to show by example that one can perform illuminating analysis of cross-section data without a host of controversial maintained hypotheses. Cross-section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries, even if they cannot easily support full-blown structural estimation.' One can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation, depending on one's feeling about the long-run potential of that research approach. This study also departs from much of the cross-section literature by being fundamentally concerned with the importance of various effects, not just with coefficient signs and t-statistics. In particular, this essay provides estimates of the relative importance of firm, market, and market share differences in the determination of business unit (divisional) profitability in U.S. manufacturing. Using 1975 data from the Line of Business Program of the U.S. Federal Trade Commission (FTC), I find support neither for the existence of firm effects nor for the importance of market share effects. Moreover, while industry effects apparently exist and are important, they appear to be negatively correlated with seller concentration in these data. Section I relates firm, market, and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis. The remainder of the essay treats the data and

1,344 citations

Posted Content
TL;DR: The authors discusses inter-industry studies of the relations among various measures of market structure, conduct, and performance, and discusses that tradition has indeed uncovered many stable, robust, and empirical regularities.
Abstract: Publisher Summary This chapter discusses inter-industry studies of the relations among various measures of market structure, conduct, and performance. It discusses that tradition has indeed uncovered many stable, robust, and empirical regularities. Inter-industry research has taught much about the way markets look, especially within the manufacturing sector in developed economies, even if it has not shown exactly the way markets work. Work in some areas has produced no clear picture of the important patterns in the data, and non-manufacturing industries have not received attention commensurate with their importance. But cross-section studies are limited by serious problems of interpretation and measurement. Future inter-industry research should adopt a modest, descriptive orientation and aim to complement case studies by uncovering robust empirical regularities that can be used to evaluate and develop theoretical tools. Much of the most persuasive recent work relies on nonstandard data sources, particularly panel data that can be used to deal with disequilibrium problems and industry-specific data, which mitigate the problem of unobservable industry-specific variables.

1,106 citations

Journal ArticleDOI
TL;DR: In this article, the authors present an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers, using a spatial competition comparison framework with brands assumed relatively immobile.
Abstract: This paper presents an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers. A spatial competition comparison framework is employed, with brands assumed relatively immobile. It is argued that the industry's conduct, in which price competition is avoided and rivalry focuses on new brand introductions, tends to deter entry and protect profits. Entry into a new segment of the market in the 1970s is discussed. Relevant welfare-theoretic issues are analyzed, and it is argued that the remedy proposed by the FTC is likely to improve performance.

918 citations

Posted Content
TL;DR: In this article, a simple market model in which rational buyer behavior in the face of imperfect information about product quality can give long-lived advantages to pioneering brands is presented, and the analysis has some implications for the variation in the strength of such advantages across markets with different basic conditions.
Abstract: tively simple market model in which rational buyer behavior in the face of imperfect information about product quality can give longlived advantages to pioneering brands. The analysis has some implications for the variation in the strength of such advantages across markets with different basic conditions. Two sorts of evidence provide the motivation for this research. First, Joe Bain's seminal empirical study of conditions of entry led him to conclude that "the advantage to established sellers accruing from buyer preferences for their products as opposed to potential entrant products is on average larger and more frequent in occurrence at large values than any other barrier to entry" (p. 216). Treating advertising as a proxy for product differentiation, a large literature has attempted to test this assertion by relating advertising to profitability in cross section.' It is interesting to note, however, that Bain concluded that

739 citations

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TL;DR: In this article, the authors used the same set of income and population growth assumptions as the Intergovernmental Panel on Climate Change (IPCC) and found that the IPCC's widely used emissions growth projections exhibit significant and substantial departures from the implications of historical experience.
Abstract: Emissions of carbon dioxide from the combustion of fossil fuels, which may contribute to long-term climate change, are projected through 2050 using reduced-form models estimated with national-level panel data for the period of 1950–1990. Using the same set of income and population growth assumptions as the Intergovernmental Panel on Climate Change (IPCC), we find that the IPCC's widely used emissions growth projections exhibit significant and substantial departures from the implications of historical experience. Our model employs a flexible form for income effects, along with fixed time and country effects, and we handle forecast uncertainty explicitly. We find clear evidence of an “inverse U” relation with a within-sample peak between carbon dioxide emissions (and energy use) per capita and per-capita income.

670 citations


Cited by
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TL;DR: The dynamic capabilities framework as mentioned in this paper analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change, and suggests that private wealth creation in regimes of rapid technology change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm.
Abstract: The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

27,902 citations

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TL;DR: In this paper, evidence from past research and insights from an exploratory investigation are combined in a conceptual model that defines and relates price, perceived quality, and perceived value for a product.
Abstract: Evidence from past research and insights from an exploratory investigation are combined in a conceptual model that defines and relates price, perceived quality, and perceived value. Propositions ab...

13,713 citations

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TL;DR: Seeks to present a better understanding of dynamic capabilities and the resource-based view of the firm to help managers build using these dynamic capabilities.
Abstract: This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.

13,128 citations

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TL;DR: In this article, the underlying economics of the resource-based view of competitive advantage is elucidated, and existing perspectives are integrated into a parsimonious model of resources and firm performance.
Abstract: This paper elucidates the underlying economics of the resource-based view of competitive advantage and integrates existing perspectives into a parsimonious model of resources and firm performance. The essence of this model is that four conditions underlie sustained competitive advantage, all of which must be met. These include superior resources (heterogeneity within an industry), ex post limits to competition, imperfect resource mobility, and ex ante limits to competition. In the concluding section, applications of the model for both single business strategy and corporate strategy are discussed.

10,149 citations

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TL;DR: In this paper, the authors draw on the social and behavioral sciences in an endeavor to specify the nature and microfoundations of the capabilities necessary to sustain superior enterprise performance in an open economy with rapid innovation and globally dispersed sources of invention, innovation, and manufacturing capability.
Abstract: This paper draws on the social and behavioral sciences in an endeavor to specify the nature and microfoundations of the capabilities necessary to sustain superior enterprise performance in an open economy with rapid innovation and globally dispersed sources of invention, innovation, and manufacturing capability. Dynamic capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long- run business performance. The microfoundations of dynamic capabilities—the distinct skills, processes, procedures, organizational structures, decision rules, and disciplines—which undergird enterprise-level sensing, seizing, and reconfiguring capacities are difficult to develop and deploy. Enterprises with strong dynamic capabilities are intensely entrepreneurial. They not only adapt to business ecosystems, but also shape them through innovation and through collaboration with other enterprises, entities, and institutions. The framework advanced can help scholars understand the foundations of long-run enterprise success while helping managers delineate relevant strategic considerations and the priorities they must adopt to enhance enterprise performance and escape the zero profit tendency associated with operating in markets open to global competition. Copyright  2007 John Wiley & Sons, Ltd.

9,400 citations