Showing papers in "Journal of Industrial Economics in 1970"

The Determination of Selling Prices

Abstract: THERE seems to be little doubt that 'cost-plus' pricing is fairly widely used in British industry. About 8o per cent of the firms in the survey by Hall and Hitch [i] claimed to use it some or all of the time. In a survey recently carried out by me on Merseyside, 70 per cent of the respondents claimed to use it for some or all of their products or services.' The prevalence of the method, however, is not at all easy to understand. This is quite apart from difficulties over profit maximization or marginal-cost pricing; probably few people nowadays would put forward these principles as realistic generalizations about the behaviour of firms, however useful they may (or may not) be in macro-economics or welfare economics. It is not proposed to define cost-plus pricing at this stage; indeed, one of the main objects of the investigation reported here was to ascertain just what it does mean. As normally understood, cost-plus pricing has three obvious defects:

Diffusion of Major Technological Innovations in U.S. Iron and Steel Manufacturing

Abstract: THE impacts of an innovation on an industry and on larger sectors of the economy clearly depend on how rapidly it comes into use. In appraising such effects, the initial decisions to be made concern the measures to be used and the level of aggregation to be studied. And the choices to be made among the wide range of possible alternatives obviously depend on one's purpose. For example, Lynn's study [i6] of the 'diffusion' of twenty major inniovations was concerned essentially with the growth of new industries rooted in major innovations and hence used the absolute value of outputs and their percentage shares of Gross National Product as measures. In another study [I7, PP. 133 if.], Mansfield was concerned with how rapidly given innovations had spread from enterprise to enterprise in four industries, so he used the percentage of major firms introducing the innovation over a given period as his measure. Neither of these approaches seems to provide a generally applicable basis for assessing the extent to which innovations displace predecessor processes and facilities. Lynn's reliance on total output is clearly inappropriate for established, as differentiated from new, industries.' Mansfield's concern with how many have adopted an innovation clearly ignores the extent of dependence on the innovation, and his concentration on major firms may be open to the possibility of unrepresentativeness-not only because smaller firms may account for significant proportions of output, but also because larger and smaller firms may differ in their responsiveness to innovations [I7, PP. I55 H.]I. The objective of this paper is to assess the rates at which production comes to be dominated by new processes or facilities. Hence, its focus is on tlle industry as a whole and the measure used is the proportion of total output accounted for by the innovation. In particular, the analysis is concentrated on the early rates of diffusion of fourteen

Differences among cities, differences among firms, and costs of urban bus transport

Abstract: This article explores the relationship between transit operating costs, characteristics of the firm and the environmental setting in which the firm operates. Data for analysis were obtained for thirty-three U.S. cities from the American Transit Association, National City Bus Lines and the Amalgamated Transit Union for calendar year 1963. Using cost per vehicle mile as the dependent variable, the author found operating costs to be higher for lower system speeds, older cities, and less intense route structures. Since route intensity and city age were found to be inversely related, cost savings from a more compact route structure were cancelled out by the increased costs of congestion in older cities. The author concludes that the city environment plays a significant role in explaining transit operating costs, particularly through the schedule speed variable, and that "city descriptor" variables should be considered in comparative analysis of urban transit performance.

A Survey into the R&D Evaluation and Control Procedures Currently Used in Industry

Abstract: THIS paper consists of an account of an enquiry into the methods and procedures used in industry for the evaluation and control of R&D (Research and Development) carried out by the R&D Research Unit at the Manchester Business School.* The organization of a questionnaire survey, and the methods of analysing the return by industry group are set out in (2) the Introduction and (3) the Presentation of Results. The different techniques and procedures which the questionnaire survey showed to be in use are set out in parts (4) to (9), and the information obtained from visits to organizations made concurrently with the survey in part (io). Some conclusions drawn from the work are advanced in (i i).

Some Problems Associated with the Marketing of Ethical Pharmaceutical Products

Abstract: ADVERTFISING frequently generates controversy. Few industries, however, have so much strong feeling aroused by their promotional activities as pharmaceuticals.' This paper discusses some of the specific reasons why pharmaceutical promotion may provide cause for concern and tries by statistical investigation to establish whether or not grounds exist for some of the criticisms to which the industry has been subjected. The paper is in two main sections. Firstly, promotion in the industry and some of the specific arguments which are directed against it are examined. Secondly, the variables used in a crosssectional, multiple regression analysis carried out on pharmaceutical promotion are described and the results of the analysis presented. The exercise was carried out using promotional data for the calendar year I966.

The Accuracy of Short-Term Business Forecasting: An Analysis of a Firm's Sales Budgeting

Abstract: THE ability of firms to predict the movement of their future sales and other short-term variables is of interest to economists both for macroand micro-economic planning reasons. If firms, in the aggregate, fail to provide fairly accurate predictions of the level, or at least the direction, of change, in these variables, then anticipations surveys, providing series for predicting the behaviour of the economy either directly or by suggesting causal relationships,1 are likely to be misleading. At the micro level, if individual firms are unable to predict satisfactorily their own sales, and other variables, then doubt is cast on theoretical formulations of firm and market behaviour which tend to ignore, or play down, uncertainty. A number of sales and employment surveys have been completed in the United States2 and elsewhere3 so that a body of evidence has accumulated on the short-term predictive accuracy of such aggregated data and some tentative analyses have been made. However, little attention has been devoted to measuring the accuracy of individual company forecasts. Two questions are important: how accurately do firms anticipate

On the Sales Revenue Maximization Hypothesis

Abstract: FEW recent theories of the firm have aroused more interest than Professor Baumol's Sales Revenue Maximization Hypothesis. His hypothesis was put forward in an attempt to derive a determinate solution for oligopoly' along the lines that some firms may aim to maximize total sales revenue subject to the constraint that they make profits at a level they deem to be the minimum necessary to keep shareholders satisfied and to make possible the raising of funds for future investment for growth. Baumol's hypothesis proved interesting in that it seemed to be determinate for oligopoly, it could explain price changes in response to changes in fixed costs, and it gave considerable weight to advertising and customer service forms of competition, which are known to be prevalent in most oligopoly markets. In I962, however, W. G. Shepherd's critique2 of Baumol's theory seemed to narrow down the fields in which it might be useful to a limited number of not very prevalent forms of competition. In particular, Shepherd's article aimed 'to dispel any lingering notion that sales maximisation can explain the behaviour of the firm in conditions of oligopoly as this term is customarily defined, that is, where inter-dependence in decision-making is present in a group of rival firms'. The purpose of this paper is to reconsider the Baumol model in the light of Shepherd's critique to see whether any firm conclusions can be drawn, even in inter-dependent oligopoly-the case that Shepherd mainly considers. The relevant sections of Shepherd's critique are quoted below after a brief restatement of Baumol's basic model.

Diffusion of catalytic techniques through a population of medium size petroleum refining firms

Abstract: THIS paper reports a study of the diffusion of two catalytic refining techniques, reforming and cracking, among forty-three medium-size petroleum refining firms. The paper has four parts: a brief description of the relevant technology; a development of some hypotheses; a report of research design and findings; a brief. interpretation of these findings. Petroleum is a mixture of compounds with different boiling points and molecular structures. Refining consists in separating the compounds and converting the less valuable compounds to higher valued compounds by changing their boiling points and/or structure. The most important product of petroleum refining is gasoline.1 '[T]he principal mark of gasoline quality has been resistance to knocking, which is expressed as "octane number" ' [Hengstebeck, 1959, P. 3]. In I950 the two main ways of converting petroleum compounds were cracking and reforming. Cracking does three things: breaks up large molecules into smaller ones; changes structures of molecules, most importantly increasing octanes of compounds in the gasoline boiling point range; recombines fragments into unwanted low value heavy compounds. Reforming compounds already in the gasoline boiling point range primarily changes their structure to increase octane without changing their weight. Although there is wide variation among petroleums, and the proportions devoted to various uses depends on market conditions, it is possible to make a rough * The theory that underlies the paper was developed jointly with Kenneth D. Mackenzie. Any error in applying the theory is mine. Nancy Bernhardt pointed out a logical error in an early draft and made extensive editorial improvements. Helpful comments were made by Frank Carmone, Irwin Feller, and W. Robert Needham. Many refining company executives generously gave time to fill out a questionnaire. 1 In I947, the nearest census date before the period studied, gasoline accounted for about 45 per cent of the value of petroleum refinery output [Cassady, 1954, p. io]. For plants with cracking facilities the proportion of value accounted for by gasoline tended to be higher-from approximately 60 per cent to over 75 per cent. This is based on statements of operating results for two hypothetical refineries with cracking equipment that appeared in trade journals. The 60 per cent figure assumes that market conditions favored 'limited gasoline and maximum kerosene and fuel oil production' [Read, 1946, p. 248]. The 75 per cent figure assumes that conditions favored the production of gasoline [Anon, 1949, p. 557].

Productivity, Labor Demand and Cost in a Continuous Production Facility

Abstract: IN Hicksian theory, the short-run demand for labor and marginal cost of a single output firm are derived from the marginal physical product curve. Marginal productivity analysis will be proved inapplicable to a steel mill department and the marginal cost and demand for labor will be derived from a local union contract, the standard crew agreement. The term 'firm' in traditional theory was clearly not meant to apply to a multi-process, multi-product steel plant. Its basic production facilities include fifty iron and steel furnaces and 500 coke ovens which must be operated continuously during the planning period. Semi-continuous, partially adaptable, processes include fifteen rolling mills and processing lines for transforming steel ingots into hundreds of different types of structural beams, plate, cold rolled and galvanized sheets and tin plate. The steel plants' raw material inputs include six million tons of iron ore, three million tons of scrap and two-thirds as much water as the city of Chicago. Overhead capital may include iOO miles of railroad tracks and 900 cars. This description should be sufficient to establish that output is the joint product of many separate production units or departments. The total and marginal products do not exist because, as Eiteman' showed, a marginal change in the output of the firm is the sum of coordinated and often non-proportional changes in the output of the departments which are the fundamental cost and production units, like the theoretical 'firm'. Departments are given current output goals every ten days which they must meet in order to synchronize their output with other departments. Overall plans are established for three months. Some firms issue labor constraints on the number of workers permitted at each level of output but state that these are seldom binding. The department is supposed to minimize cost. If it succeeds in reducing it below its historical level, management and even the workers may receive a bonus for doing so. The minimization of cost and tcchnical