Showing papers in "Managerial and Decision Economics in 1983"
TL;DR: A review of the parallel development of the disciplines of corporate strategy and industrial organisation can be found in this paper, which suggests that the two may be about to merge, or at least be capable of synergy.
Abstract: This paper reviews the parallel development of the disciplines of corporate strategy and industrial organisation. Recent developments in industrial economics suggest that the two may be about to merge, or at least be capable of synergy. This potential advance has come about because of the movement of industrial organisation theories towards dynamics and away from static concepts such as the traditional structure: conduct: performance model. Simultaneously, corporate strategists, who have always been dynamically oriented, have long been in search of the more sophisticated theories industrial economists have in their tool kits.
78 citations
TL;DR: In this paper, the authors explored pricing flexibility among a sample of 728 manufacturing firms surveyed during a period of severe business adversity and found that the degree of flexibility is not influenced significantly by the extent of commitment to cost-plus pricing techniques.
Abstract: This article explores pricing flexibility among a sample of 728 manufacturing firms surveyed during a period of severe business adversity. It addresses attention to the nature and prevalence of alternative pricing techniques, the temporal frequency of mark-up adjustments, the application of marginalist principles in pricing and price discount practices. Three general conclusions emerge. Pricing flexibility is widespread and probably more so than hitherto. The degree of flexibility is not influenced significantly by the extent of commitment to cost-plus pricing techniques. Pricing flexibility varies substantially and systematically with firm size but not with numbers of ‘serious’ competitors.
25 citations
TL;DR: In this paper, the authors present a theory of the "megacorp" which is based on the macro-economic theory of a firm and the atomistic firm at both the micro and macro levels.
Abstract: This paper challenges the orthodox microeconomic theory of the firm which is being gradually replaced as the consensus view by managerialist, behaviourist, institutionalist and post-Keynesian schools of thought. From this new microeconomics is emerging a synthesis which is providing the foundations for a theory of the ‘megacorp’. Megacorps have behaviour patterns at odds with those of the atomistic firm. Unless this is understood and an appropriate theory developed, attempts to manage the economy by traditional means are doomed to failure. The paper lays the foundations of such a theory at both the micro and macro levels.
22 citations
TL;DR: In this paper, the authors present a theoretical foundation for marketing based on the ideas of the Austrian school of economists, which provides the basis for a theory of entrepreneurship and marketing, which they call methodological individualism.
Abstract: This article presents a theoretical foundation for marketing based on the ideas of the Austrian school of economists. After a discussion of the methodological foundations of Austrian economics, which reject the statistical and experimental methods of the physical sciences as the means to verify theory in the social sciences, the article presents the Austrians' principle of methodological individualism, which provides the basis for a theory of entrepreneurship and marketing.
16 citations
TL;DR: In this article, the authors explored the association between the growth of sales and the size of the world's largest industrial firms for the period 1967-77 and found that large numbers of firms exhibited a positive relationship between size and growth.
Abstract: This paper explores the association between the growth of sales and the size of the world's largest industrial firms for the period 1967–77. The tests follow the methodology introduced by Rowthorn and Hymer (1971) who, for an earlier period, had remarked that although there was slight evidence amongst smaller firms of a negative relationship between growth and size, at no time, and in no area, were there signs of a positive relationship. Our results are, in general, similar to those of Rowthorn and Hymer. The main difference being the large numbers of firms (mostly American) exhibiting a positive relationship between size and growth for 1972–7.
13 citations
TL;DR: The authors analyzes factors determining the profitabilty of 750 of Canada's largest manufacturing firms, both domestic-and foreign-controlled, over the period 1968-1972, and finds that US-controlled firms were more profitable than either Canadian- or other foreign controlled firms, when various firm- and industry-specific factors are held constant.
Abstract: This study analyzes factors determining the profitabilty of 750 of Canada's largest manufacturing firms, both domestic- and foreign-controlled, over the period 1968-1972. It is found that US-controlled firms were more profitable than either Canadian- or other foreign-controlled firms, when various firm- and industry-specific factors are held constant. In addition, the higher was the degree of non-resident (presumably American) ownership, the more profitable were US-controlled firms. The reverse was true of other foreign firms. These results for US firms are consistent with the Hymer–Caves and internalization approaches to the multinational corporation. However, the results for other firms are not, thus suggesting that a ‘general’ theory of the multinational corporation has yet to be forwarded.
11 citations
TL;DR: In this article, the authors consider possible determinants of diffusion processes and expose to test hypotheses on determinants for mean lags per country and numbers of new products launched in each country.
Abstract: This paper considers possible determinants of diffusion processes and exposes to test hypotheses on determinants of mean lags per country and numbers of new products launched in each country. For drugs launched before 1969 these mean lags and numbers of products appear primarily to have been determined by commercial forces. Drugs launched after 1969 do not exhibit such predictable diffusion patterns. Assessents of regulatory tightness in the eighteen markets studied provide impressive explanations for changes in mean lag times per country and numbers of products launched-in each country. FDA critics appear justified in claiming that FDA regulations have caused a US drug lag.
10 citations
TL;DR: In this paper, the authors discuss the impact of regulation on competition and innovation in the pharmaceutical industry and discuss the two basic forms of regulation which they observe to be typical, namely, quality regulation (licencing) and price regulation.
Abstract: This article discusses the impact of regulation on competition and innovation in the pharmaceutical industry. Prompted by concern over attempts at regulating the industry on the European level, we discuss the two basic forms of regulation which we observe to be typical, quality regulation (licencing) and price regulation. In doing so, the analysis focuses on the research segment of the pharmaceutical industry and discusses forms of competition by innovation. Following a recent paper by Nelson, the specific characteristics of competition in the pharmaceutical industry are developed as well as their welfare implications. Regulatory behavior vis-a-vis the industry is analysed in terms of a behavioral model initially proposed by Stigler, and an attempt is made to incorporate into the analysis the experience of regulation in both Europe and the United States of America.
9 citations
TL;DR: In this paper, the authors argue that modern labor economics, viewed from a subjectivist perspective, is argued to merit a mixed review and that neoclassical labor economists seem quite amenable to incorporation of subjective elements into their analysis.
Abstract: Subjectivist methodology has attracted an increasing number of adherents as a result of the recent reemergence of the Austrian school The new Austrian school has challenged the methodological approach of neoclassical economics in many areas This essay seeks to extend that challenge into the area of labor economics Modern labor economics, viewed from a subjectivist perspective, is argued to merit a mixed review However, it is also argued that neoclassical labor economists (as compared with neoclassicists in other specialized areas) seem quite amenable to incorporation of subjective elements into their analysis
8 citations
TL;DR: In this article, the authors consider why firms differ in the degree to which they rely on their internal R&D organization for generating new technologies (induced innovations) rather than on existing external technology markets (purchased innovations).
Abstract: This paper considers why firms differ in the degree to which they rely on their internal R&D organization for generating new technologies (induced innovations) rather than on existing external technology markets (purchased innovations). An empirical model is suggested to explan inter-firm differences in the percentage of new technology induced through R&D efforts. The analysis suggests that such differences are systematically related to the firm's size, its competative environment, and its degree of diversification.
8 citations
TL;DR: Time series studies and a cross-sectional study indicate that the drug has reduced the net direct costs of ulcer disease, and Randomized clinical trials show reductions in surgery and work loss among cimetidine-treated patients versus placebo controls.
Abstract: Psychosocial benefit resists monetary expression. However, reduction in costs, with no loss of benefits assumed, improves a cost-benefit ratio. The effect of cimetidine on the costs of ulcer has been widely studied. Randomized clinical trials show reductions in surgery and work loss among cimetidine-treated patients versus placebo controls. In the community, time series studies have documented drops in ulcer surgery, averaging about 25% below the expected trend line, following marketing introduction of the drug. These, plus a cross-sectional study of Medicaid patients with and without use of cimetidine, indicate that the drug has reduced the net direct costs of ulcer disease.
[...]
TL;DR: The authors reviewed a number of empirical studies on the relation between strategy and performance and concluded that even established results are of little help to strategists, and that the unanswered questions relating to empirical studies must continue to limit their usefulness for strategic planning.
Abstract: Empirical research on the relation between strategy and performance is rarely conclusive. This paper reviews a number of such studies, and suggests that while the links between planning or market share and performance have been fairly clearly established for certain circumstances or time periods, the results for diversity or merger are much more equivocal. Further, it suggests that even ‘established’ results are of little help to strategists, and that the unanswered questions relating to empirical studies must continue to limit their usefulness for strategic planning.
TL;DR: In this article, three types of analytical tools are discussed: (1) analytical portfolio models; (2) business simulation models; and (3) optimization models, which explicitly allow for interdependices across business units.
Abstract: This paper examines several approaches to corporate strategic planning in the context of their relationship to the microeconomic theory of the firm, and discusses the implications of that theory for corporate strategy in general. Specifically, three types of analytical tools are discussed: (1) analytical portfolio models; (2) business simulation models; and (3) optimization models. Examples of how the three types of tools are used in corporate decision-making are given, and certain limitations are cited. The limitations include, for example, the inability of some of the models to deal with interdependencies across business units in production resources or output demand. Finally, the paper examines the approach to strategic planning known as the ‘strategy matrix’, which explicitly allows for interdependices across business units. The use of the strategy matrix by a major petroleum company is discussed in some detail.
TL;DR: In this article, a simple exit-quit-voice (bargaining) model of strike activity is applied to a sample of foreign-owned plants in British manufacturing industry and strike activity was found to depend on both structural and cost factors.
Abstract: A simple exit(quit)–voice (bargaining) model of strike activity is applied to a sample of foreign-owned plants in British manufacturing industry. Strike activity is found to depend on both structural and cost factors. Intra-enterprise trade appears to be a significant cost consideration for integrated firms. These findings have important implications for labour responses to the multinational enterprise and challenge the alleged bargaining disadvantage of labour.
TL;DR: In this article, the authors consider that the difficulty lies less in the absence of techniques and more in the failure of top management to state its objectives with precision, and propose a strategic audit to aid in goal specification.
Abstract: To bring the highly developed quantitative approaches of middle management in accounting and control to the aid of corporate strategists is not easy. Specific operational problems are less overt and therefore formal optimization techniques are less easy to apply. The paper considers that the difficulty lies less in the absence of techniques and more in the failure of top management to state its objectives with precision. To do this a strategic audit is suggested. This can aid in goal specification. Industrial economics and game theory can then be applied to the problem so delineated.
TL;DR: In this paper, the relative costs of cash, cheque, credit card, and credit account transactions to retailers in the United Kingdom were studied and the costs of accepting credit card and providing credit accounts were found to depend crucially upon the generation of additional sales by these forms of payment.
Abstract: Do credit card transactions cost the retailer substantially more than other forms of payment? This question was central to a study of the relative costs of cash, cheque, credit card and credit account transactions to retailers in the United Kingdom. The study identifies the principal cost elements and provides quantitative estimates based upon a pilot sample. The costs of accepting credit card and providing credit accounts were found to depend crucially upon the generation of additional sales by these forms of payment.
TL;DR: In this paper, it is shown that the UK Monopolies and Mergers Commission has typically neither produced, nor correctly processed, the information necessary for making rational decisions, and the case for an explicit quantitative approach using the expected value criterion is outlined.
Abstract: It is shown that the UK Monopolies and Mergers Commission has typically neither produced, nor correctly processed, the information necessary for making rational decisions. The case for an explicit quantitative approach using the expected value criterion is outlined.
TL;DR: In this article, the authors analyzed the relationship among indicators and causes of size advantages in industry using Joreskog and Goldberger's multiple indicator and multiple cause model, and found that concentration causes reductions in production costs and suboptimal capacity.
Abstract: Relationships among indicators and causes of size advantages in industry are analysed here using Joreskog and Goldberger's multiple indicator and multiple cause model. This approach is thought to be particularly appropriate for the study of size advantages in industry since only imperfect indicators of this important economic variable are typically available. An important objective of the analysis is to learn whether or not size advantages tend to be more effectively exploited in instances of high concentration. Estimation results suggest that this is indeed the case, and imply a direction of causation from concentration to realized size advantages much as earlier studies have found that concentration causes reductions in production costs and suboptimal capacity. This finding is important from a theoretical point of view since it suggests that further studies on the subject should consider the possibility that the degree to which size advantages in industry are exploited is endogenously determined. In addition, these findings imply that antitrust policies intending to reduce the relative sizes of leading firms must be sensitive to the potential for at least some losses in operating efficiency.
TL;DR: In this paper, the role of capital intensity variables in these types of studies is clarified, and the interpretation of the regressions as representing the determinants of non-wage share of value-added is itself challenged.
Abstract: This note comments on a recent article in this journal by Hollander. The principal points made are two. First, if Hollander's regressions are interpreted as representing the determinants of non-wage share of value-added, no evidence is provided by these regressions that monopsony power transfers income from factors in one industry to factors in another. Second, the interpretation of the regressions as representing the determinants of non-wage share of value-added is itself challenged. In so doing the role of capital intensity variables in these types of studies is clarified.
TL;DR: In this paper, the authors show that there is a significant correlation between a firm's performance and strategic position and the rate at which it grows as measured by additions to capital stock.
Abstract: Empirical tests using the PIMS data base reveal a significant correlation between a firm's performance and strategic position and the rate at which it grows as measured by additions to capital stock. To the extent that the results are valid, then public policy measures to encourage capital investment will not be firm netural. The cost of capital will be lowered for all, but they will further stimulate investment in firms whose strategic position they improve. This may have an outcome detrimental to other firms better placed to contribute to the overall economy.
TL;DR: In this article, the authors present a methodology for evaluating risk in the investment decision by developing measures of expected real cash flow growth (reward) and expected annual variability of this growth (risk).
Abstract: Evaluating risk is a key element in successful investment decision-making. A major risk in forecasting company performance is associated with projecting its cash flow streams by product-line which in turn is strongly related to the expected industry outlook and likely variability about this outlook. This paper sets out a methodology for evaluating this aspect of the investment decision by developing measures of expected real cash flow growth (reward) and expected annual variability of this growth (risk). These measures are constructed for 77 industry classifications at the two and three digit SIC (Standard Industrial Classification) level of detail by solving a dynamic input–output model under various economic secenarios. Aside from producing results which are relevant for producing company valuation bands, the analysis strongly suggests that perceptions of which industries are ‘winners’ and which are ‘losers’ are significantly altered when both ‘reward’ and ‘risk’ are used as criteria as opposed to either one alone. Finally, the methodology also produces results which measures the sources of cash flow growth in terms of relative price performance, productivity, and demand for output. Since there measures can be used as indicators of the quality of industry real cash flow growth, industry performance can be further arrayed within the broad categories of winning and losing industries. Several examples of how this is done are offered.
TL;DR: In this paper, an alternative to the usual iterative method for determining the approximate internal rate of return in capital budgeting is presented, based on the standard numerical analysis technique of successive approximations or iterations.
Abstract: This paper presents an alternative to the usual iterative method for determining the approximate internal rate of return in capital budgeting. The method developed is based on the standard numerical analysis technique of successive approximations or iterations. The iterations converge to the true internal rate of return provided only that the initial cash outflow is greater than the salvage value. A comparison is made of the rates of convergence of the iteration method, Newton's method and the bisection method. Under certain restrictive conditions, the payback reciprocal is seen to play an important role in all three methods.
TL;DR: In this article, the use of the capital asset pricing model (CAPM) as a strategic planning tool is reviewed and the links between the CAPM and other approaches to strategic planning are noted and discussed.
Abstract: In this paper, the use of the capital asset pricing model (CAPM) as a strategic planning tool is reviewed. The links between the CAPM and other approaches to strategic planning are noted and discussed. We conclude that the CAPM complements other types of analysis very effectively and offers management an extremely powerful analytical tool for strategic planning.
TL;DR: In this article, four well-known British firms are examined in depth and their evolution over time is analysed and how managerial behaviour and perceptions changed is discussed, concluding that firms have been decentralizing in the last two decades in order to provide greater scope for managerial initiative, training and entrepreneurship at all levels.
Abstract: This is the first of two papers in this issue on how business decisions are made. The origins of corporate strategy and policy and the involvement of senior and junior management in such activities are theoretically difficult to generalize about. In these papers four well-known British firms are examined in depth. Their evolution over time is analysed and how managerial behaviour and perceptions changed is discussed. The conclusion is drawn that firms have been decentralizing in the last two decades in order to provide greater scope for managerial initiative, training and entrepreneurship at all levels. Part 2 contains the detailed evidence: some readers may prefer to consider it immediately after Section 1 below.
TL;DR: In this article, the authors derived a positive model relating changes in profitability to output levels, price, input quantities, and costs, and applied it to results obtained from the United States Postal Service income statement.
Abstract: This paper derives a positive model relating changes in profitability to output levels, price, input quantities, and costs. The model involves decomposition of profit changes to define contributions associated with changes in the product market and production input variables. It can be derived from basic profit concepts without additional assumptions regarding the organization's behavioral decisions or about the shapes of the demand or production functions. It therefore avoids all normative underpinnings and is based strictly on measurable changes in the environment. The model is applied to results obtained from the United States Postal Service income statement. Changes in the Service's productivity and its components (e.g., labor, materials, and capital) are fully reconciled in an accounting sense with reported changes in net income. This reconciliation permits the identification of the sources of net income change.
TL;DR: In this paper, the authors seek to ascertain if stock market pricing procedures are operationally efficient in setting prices so as to discriminate against poor-quality management by using Ordinary least-squares regression analysis.
Abstract: This paper seeks to ascertain if stock market pricing procedures are operationally efficient in setting prices so as to discriminate against poor-quality management. Signalling theory suggests management's leverage decision as the means by which managerial quality can be identified. Departures from average leverage, given firm characteristics, are interpreted as indicating managerial quality. Ordinary least-squares regression analysis is used to identify these departures, and to test if shareholders' yields are responsive to them. The results are not always statistically significant, but do provide some support for the signalling hypothesis and for the efficiency of UK security pricing.
TL;DR: This paper showed that the behavior of demand of cash by business firms can better be understood by empirical testing theory on data derived from individual units rather than making unrealistic assumptions to justify testing of aggregated data.
Abstract: This study suggests that the behavior of demand of cash by business firms can better be understood by empirical testing theory on data derived from individual units rather than making unrealistic assumptions to justify testing of aggregated data. Using data for firms in the food industry, this study shows that the rate of interest is a significant variable in explaining the demand for cash. Furthermore, the statistical results indicate that the economies of scale in the management of cash depends upon the type of goods produced by the corporations under study. Accordingly, one cannot make any generalization regarding the question of the economies of scale in the management of cash.
TL;DR: In this article, the utility of corporate published forecasted financial reports to investors has been investigated and the findings are inconclusive, which may have resulted from the ambiguity of defining the forecastedfinancial reports or its components.
Abstract: Although the utility of corporate published forecasted financial reports to investors has been investigated, the findings are inconclusive. These inconclusive findings may have resulted from the ambiguity of defining the forecasted financial reports or its components. The clarification of the definition of forecasted financial reports or its components is the main objective of the present study. In addition, an investor's utility function is used to measure the utility of such reports for investors regarding the entire forecasted financial reports or their components.