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Showing papers in "Managerial and Decision Economics in 2007"


Journal ArticleDOI
TL;DR: The results should be viewed with some caution for now given a limited number of biopharmaceutical molecules with data on cash outlays, different therapeutic class distributions for biophARMaceuticals and for pharmaceutical company drugs, and uncertainty about whether recent growth rates in pharmaceutical company costs are different from immediate past growth rates.
Abstract: The costs of developing the types of new drugs that have been pursued by traditional pharmaceutical firms have been estimated in a number of studies. However, similar analyses have not been published on the costs of developing the types of molecules on which biotech firms have focused. This study represents a first attempt to get a sense for the magnitude of the R&D costs associated with the discovery and development of new therapeutic biopharmaceuticals (specifically, recombinant proteins and monoclonal antibodies [mAbs]). We utilize drug-specific data on cash outlays, development times, and success in obtaining regulatory marketing approval to estimate the average pre-tax R&D resource cost for biopharmaceuticals up to the point of initial US marketing approval (in year 2005 dollars). We found average out-of-pocket (cash outlay) cost estimates per approved biopharmaceutical of $198 million, $361 million, and $559 million for the preclinical period, the clinical period, and in total, respectively. Including the time costs associated with biopharmaceutical R&D, we found average capitalized cost estimates per approved biopharmaceutical of $615 million, $626 million, and $1241 million for the preclinical period, the clinical period, and in total, respectively. Adjusting previously published estimates of R&D costs for traditional pharmaceutical firms by using past growth rates for pharmaceutical company costs to correspond to the more recent period to which our biopharmaceutical data apply, we found that total out-of-pocket cost per approved biopharmaceutical was somewhat lower than for the pharmaceutical company data ($559 million vs $672 million). However, estimated total capitalized cost per approved new molecule was nearly the same for biopharmaceuticals as for the adjusted pharmaceutical company data ($1241 million versus $1318 million). The results should be viewed with some caution for now given a limited number of biopharmaceutical molecules with data on cash outlays, different therapeutic class distributions for biopharmaceuticals and for pharmaceutical company drugs, and uncertainty about whether recent growth rates in pharmaceutical company costs are different from immediate past growth rates. Copyright © 2007 John Wiley & Sons, Ltd.

558 citations


Journal ArticleDOI
TL;DR: In this article, the authors hypothesize that trust is a moderator of the direct relationship between control and coordination concerns and contractual complexity, and they suggest that high trust weakens the positive relationship between trust and control concerns and contract complexity.
Abstract: We hypothesize that trust is a moderator of the direct relationship between control and coordination concerns and contractual complexity. Our results suggest that high trust weakens the positive relationship between control concerns and contractual complexity and reinforces the positive relationship between coordination concerns and contractual complexity. By highlighting the dual role of contracts (i.e. a controlling and coordinating function) and the moderating role of trust in this regard, our paper provides a new focus to the current discussion on the relationship between trust and contracts (i.e. substitutes or complements) that may help reconcile some divergent perspectives in the literature. Copyright © 2007 John Wiley & Sons, Ltd.

228 citations


Journal ArticleDOI
TL;DR: In this article, the determinants and effects of M&A activity in the pharmaceutical/biotechnology industry using SDC data on 383 firms from 1988 to 2001 were examined using a propensity score to control for selection based on observed characteristics.
Abstract: We examine the determinants and effects of M&A activity in the pharmaceutical/biotechnology industry using SDC data on 383 firms from 1988 to 2001. For large firms, mergers are a response to expected excess capacity due to patent expirations and gaps in a firm's product pipeline. For small firms, mergers are primarily an exit strategy in response to financial trouble (low Tobin's q, few marketed products, low cash–sales ratios). In estimating effects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large firms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating profit, compared with similar firms that did not merge. Thus mergers may be a response to trouble, but they are not a solution. Copyright © 2007 John Wiley & Sons, Ltd.

168 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined generic competition and market exclusivity periods for pharmaceuticals experiencing their initial generic entry between 1995 and 2005 and found that generic competition has increased over several dimensions.
Abstract: In this paper we examine generic competition and market exclusivity periods for pharmaceuticals experiencing their initial generic entry between 1995 and 2005. We find that generic competition has increased over several dimensions. First, an increasing number of drugs are subject to generic entry, including drugs with relatively modest annual average sales. Second, drugs with larger sales attract more generic entrants and have shorter market exclusivity periods than smaller selling drugs. Third, blockbuster drugs with annual sales in excess of $1 billion have experienced significant decreases in their market exclusivity periods in recent years. We also find that Hatch-Waxman Act patent challenges have negatively affected market exclusivity periods over the 1995 to 2005 period. Copyright # 2007 John Wiley & Sons, Ltd.

160 citations


Journal ArticleDOI
TL;DR: In this paper, a mixed duopoly setting is examined where a private non-profit firm (NPO) competes with a private profit-maximizer, and the NPO's stakeholders select a contract for their managers.
Abstract: A mixed duopoly setting is examined where a private non-profit firm (NPO) competes with a private profit-maximizer. The NPO's stakeholders select a contract for their managers. A novel NPO objective function is utilized which takes into account all the likely returns to the NPO's stakeholders (NPO profits and the surplus accruing to the NPO stakeholders) in such a commercial setting. In sub-game perfect equilibria, it is shown that the NPO's managers generally will not be given the NPO's true objective to optimize. It is also shown that aggregate social welfare may increase or decrease due to this managerial contracting behavior or the use of NPO membership fees. Copyright © 2007 John Wiley & Sons, Ltd.

101 citations


Journal ArticleDOI
TL;DR: In this paper, a model and empirical test, using data obtained from the Spanish professional soccer league for the season 2001/2002, suggests that monopsony rents that the clubs were to obtain from most of the soccer players would eventually revert to the superstars.
Abstract: In labor markets where few companies compete for many workers, economic theory predicts monopsony rents. Surprisingly, soccer clubs do not profit from the expected rents. The purpose of this study is to explain such contradictory evidence. Our model and empirical test, using data obtained from the Spanish professional soccer league for the season 2001/2002, suggests that monopsony rents that the clubs were to obtain from most of the soccer players would eventually revert to the superstars. The study also illustrates that the market value of players stems both from their sporting performance and their economic contribution. Copyright © 2007 John Wiley & Sons, Ltd.

77 citations


Journal ArticleDOI
TL;DR: It is found that generic biologics will have high fixed costs from clinical testing and from manufacturing, so there will be less entry than would be expected for generic pharmaceuticals.
Abstract: Patents for several blockbuster biological products are expected to expire soon. The Food and Drug Administration is examining whether biologics can and should be treated like pharmaceuticals with regard to generics. In contrast with pharmaceuticals, which are manufactured through chemical synthesis, biologics are manufactured through fermentation, a process that is more variable and costly. Regulators might require extensive clinical testing of generic biologics to demonstrate equivalence to the branded product. The focus of the debate on generic biologics has been on legal and health concerns, but there are important economic implications. We combine a theoretical model of generic biologics with regression estimates from generic pharmaceuticals to estimate market entry and prices in the generic biologic market. We find that generic biologics will have high fixed costs from clinical testing and from manufacturing, so there will be less entry than would be expected for generic pharmaceuticals. With fewer generic competitors, generic biologics will be relatively close in price to branded biologics. Policy makers should be prudent in estimating financial benefits of generic biologics for consumers and payers. We also examine possible government strategies to promote generic competition. Copyright # 2007 John Wiley & Sons, Ltd.

72 citations


Journal ArticleDOI
TL;DR: In this article, a generic version of a previously patented product is introduced and a branded firm can influence the equilibrium in the generic segment of the market for the product, which can increase the firm's profits from selling the branded version.
Abstract: This paper demonstrates how, by introducing a generic version of its previously patented product, a branded firm can influence the equilibrium in the generic segment of the market for the product. This in turn can increase the firm's profits from selling the branded version. We then use structural estimates from previous literature to calculate the magnitude of the effects in the generic and branded segments. Copyright © 2007 John Wiley & Sons, Ltd.

64 citations


Journal ArticleDOI
TL;DR: In this article, the authors analyzed the relationship between the corporate governance system and technical efficiency in Italian manufacturing and found that two characteristics turn out to have a positive impact on technical efficiency: the percentage of the company shares owned by the largest shareholders and the fact that a firm belongs to a pyramidal group.
Abstract: The purpose of this paper is to analyse the relationship between the corporate governance system and technical efficiency in Italian manufacturing. We use a non-parametric frontier technique (DEA) to derive technical efficiency measures for a sample of Italian firms taken from nine manufacturing industries. These measures are then related to the characteristics of the corporate governance system. Two of these characteristics turn out to have a positive impact on technical efficiency: the percentage of the company shares owned by the largest shareholder and the fact that a firm belongs to a pyramidal group. Interestingly, a trade-off emerges between these influences, in the sense that one is stronger in industries where the other is weaker. Copyright © 2007 John Wiley & Sons, Ltd.

55 citations


Journal ArticleDOI
TL;DR: In this paper, it was shown that the smaller the price change of an individual product, the larger the average price change for the remaining products sold by the store, and that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms.
Abstract: We find that while some individual price changes are indeed ‘small’, the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.

54 citations


Journal ArticleDOI
TL;DR: In this article, the authors consider two-stage delegation games in which owner-shareholders negotiate about compensation with their managers in the game's first stage and the managerial compensation contract outcomes of the bargaining process are publicly announced in the second stage.
Abstract: Modern corporate governance codes include clauses requiring the disclosure of managerial compensation. Such codes have been installed to protect shareholders' interests. In this paper, we explore the impact of such disclosure on consumer welfare. We consider two-stage delegation games in which owner-shareholders negotiate about compensation with their managers in the game's first stage. At the end of the first stage, the managerial compensation contract outcomes of the bargaining process are publicly announced. In the second stage, Cournot competition evolves. We prove that sales delegation generates equilibria radically different from relative performance delegation. Using classical Cournot as the benchmark, contractual bargaining over sales compensation gives tougher product market competition - and hence higher consumer surplus. The opposite holds true for relative performance delegation. Then, cartel behavior is promoted, reducing consumer surplus.

Journal ArticleDOI
TL;DR: In this paper, the effect of asymmetric reference price on the profitability of price promotions is analyzed and the optimal depth and duration of a price promotion is calculated. But the authors focus on the negative effect of reference prices on the degree of price rigidity and flexibility.
Abstract: In this study we demonstrate how a reference price may affect the degree of price rigidity/ flexibility. For this, we construct a model of reference-price formation, which we use to analyze the effect of asymmetric reference price (cut ‘effects’) on the profitability of price promotions. We derive explicit expressions for the additional profits earned during a promotional period due to consumer perception of a ‘gain’, and for the post-promotion loss of potential profits due to consumer perception of a ‘loss’. We show that when effects of losses on demand are greater than effects of gains (‘loss aversion’), price promotions always lead to a decline in profits. When, however, effects of gains are larger than those of losses, price promotions, as well as reverse price promotions (i.e. price increase) can be profitable. In the latter case we calculate the optimal depth and duration of a price promotion. We also show that reference price can affect price rigidity and flexibility. Copyright # 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this article, the authors examine a variety of strategies firms may utilize to prevent their counterfeit drugs from being sold in a representative developing country, through a theoretical model of the market and several anticounterfeiting strategies.
Abstract: The debate over access to medicines has principally centered on pharmaceutical patents and prohibitively high drug prices. Although a less recognized problem, counterfeit pharmaceuticals are certainly a more insidious barrier to access. Pharmaceutical counterfeiting is an invisible threat, not only by nature, but also because the industry has historically downplayed it. However, that has changed. Pharmaceutical firms now not only readily concede counterfeiting is a threat to their business, but in some cases publicly address their strategies and the anticounterfeiting technologies in use and development. Acknowledging the problem has benefited the industry because it alters the ways in which firms are able to combat counterfeiting, allowing them to more overtly confront the problem. In addition, it allows them to better partner with governments and health advocates since their incentives are aligned in efforts to prevent counterfeiting. In light of the more public and more aggressive campaign against counterfeiting, it is important to examine the variety of strategies firms may utilize to prevent their sale. Through a theoretical model of the market in a representative developing country, several anticounterfeiting strategies are considered. Some strategies appear to be more effective than others in the battle against fake drugs. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: The authors found that the appointment of a council empirically turned out to be more likely as decision rights were increasingly allocated to companies' management, and this relationship was negatively moderated by the contractual share parameter.
Abstract: Besides franchisee opportunistic behavior, franchisor moral hazard is a central concern in franchise chains. Economic literature thus far focused on the sharing of franchisee revenues as an incentive for curbing franchisor malfeasance. In this paper, we ask whether and how the obligations of chains may be enforced through institutional arrangements like franchisee councils. Consistent with expectations, the appointment of a council empirically turned out to be more likely as decision rights—a proxy for the scope of moral hazard—were increasingly allocated to companies' management. We found this relationship to be negatively moderated by the contractual share parameter. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, a prospective micro-simulation approach is used to evaluate the effect of price controls on early-stage product development decisions in the pharmaceutical industry, using partial-information estimators calibrated with the most contemporary clinical and economic data.
Abstract: Previous empirical studies that have examined the links between pharmaceutical price controls, profits, cash flows, and investment in research and development (R&D) have been largely based on retrospective statistical analyses of firm- and/or industry-level data. These studies, which have contributed numerous insights and findings to the literature, relied upon ad hoc reduced-form model specifications. In the current paper we take a very different approach: a prospective micro-simulation approach. Using Monte Carlo techniques we model how future price controls in the US will impact early-stage product development decisions in the pharmaceutical industry. This is done within the context of a net present value (NPV) framework that appropriately reflects the uncertainty associated with R&D project technical success, development costs, and future revenues. Using partial-information estimators calibrated with the most contemporary clinical and economic data available, we demonstrate how pharmaceutical price controls will significantly diminish the incentives to undertake early-stage R&D investment. For example, we estimate that cutting prices by 40–50% in the US will lead to between 30 and 60% fewer R&D projects being undertaken (in early-stage development). Given the recent legislative efforts to control prescription drug prices in the US and the likelihood that price controls will prevail as a result, it is important to better understand the firm response to such a regulatory change. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: This article found that people who used newer drugs had better post-treatment health than people using older drugs for the same condition, controlling for pre-treatment, age, sex, race, marital status, education, income, and insurance coverage: they were more likely to survive, their perceived health status was higher, and they experienced fewer activity, social, and physical limitations.
Abstract: Several econometric studies have concluded that technical progress embodied in equipment is a major source of manufacturing productivity growth. Other research has suggested that, over the long run, growth in the US economy's ‘health output’ has been at least as large as the growth in non-health goods and services. One important input in the production of health—pharmaceuticals—is even more R&D-intensive than equipment. In this paper, we test the pharmaceutical-embodied technical progress hypothesis—the hypothesis that newer drugs increase the length and quality of life—and estimate the rate of progress. To do this, we estimate health production functions, in which the dependent variables are various indicators of post-treatment health status (such as survival, perceived health status, and presence of physical or cognitive limitations), and the regressors include drug vintage (the year in which the FDA first approved a drug's active ingredient(s)) and indicators of pre-treatment health status. We estimate these relationships using extremely disaggregated—prescription-level—cross-sectional data derived primarily from the 1997 Medical Expenditure Panel Survey. We find that people who used newer drugs had better post-treatment health than people using older drugs for the same condition, controlling for pre-treatment health, age, sex, race, marital status, education, income, and insurance coverage: they were more likely to survive, their perceived health status was higher, and they experienced fewer activity, social, and physical limitations. The estimated cost of the increase in vintage required to keep a person alive is lower than some estimates of the value of remaining alive for 1 month. One estimate of the cost of preventing an activity limitation is $1745, and the annual rate of technical progress with respect to activity limitations is 8.4%. People consuming newer drugs tend to experience greater increases (or smaller declines) in physical ability than people consuming older drugs. Most of the health measures indicate that the effect of drug vintage on health is higher for people with low initial health than it is for people with high initial health. Therefore in contrast to equipment-embodied technical progress, which tends to increase economic inequality, pharmaceutical-embodied technical progress has a tendency to reduce inequality as well as promote economic growth, broadly defined. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, the authors study empirical regularities of price change timing for music CD vendors and booksellers to assess several theoretical explanations and find evidence of business rules for strategic pricing associated with tacitly collusive pricing and Edgeworth competition.
Abstract: Internet technologies should lessen information asymmetry, prompting competitive price reactions, but this does not seem to be happening in Internet-based selling. We study empirical regularities of price change timing for music CD vendors and booksellers to assess several theoretical explanations. Our sample includes 123, 680 daily prices for 169 products and 53 firms. Bertrand competition is insufficient to explain our observation that sellers do not shift prices this way. Tacitly collusive responses to competitors' price changes are observed rather than price changes solely in response to demand or cost shifts as would be expected with Bertrand competition. We find evidence of business rules for strategic pricing associated with tacitly collusive pricing and Edgeworth competition. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: The concept of sticky prices has been used as a metaphor for the perceived importance of monetary policy since at least as far back as the 1930s as discussed by the authors, and it is natural to think that monetary policy can influence the level of real economic activity through its ability to determine the nominal quantity of money.
Abstract: heconceptof“stickyprices”hasbeenoneofthemostcommonexpla-nations for the perceived importance of monetary policy since at leastas far back as the 1930s. Simply put, if nominal prices for individualgoods do not continuously adjust to economic conditions, then it is natural tothink that monetary policy can influence the level of real economic activitythrough its ability to determine the nominal quantity of money. In evaluatingwhether this channel for monetary policy is important, two sets of researchquestions are relevant. First, do individual prices indeed change infrequently,and if so, why? Second, within macroeconomic models, what are the ag-gregate implications of the pricing behavior found in the data, and are thoseimplications consistent with aggregate economic data? This article reviewsresearch on the first set of questions in the hope of deriving lessons useful forimproving the macroeconomic models that can address the second set.

Journal ArticleDOI
TL;DR: The authors examined the effects of mergers on the returns to acquiring companies' shareholders for a large sample of companies from both Anglo and non-Anglo-Saxon countries over the 1980s and 1990s.
Abstract: We examine the effects of mergers on the returns to acquiring companies' shareholders for a large sample of companies from both Anglo-Saxon and non-Anglo-Saxon countries over the 1980s and 1990s. With the important exception of Japan, we find similar patterns of returns across both types of countries. For a sample of 9733 acquiring companies the mean percentage gain over a short window of 21 days is 0.6%. This picture changes dramatically as the market has more time to evaluate the mergers and/or the acquiring firms. After three years, acquirers' shareholders in the United States and continental Europe lost on average 19% of their market value compared to a portfolio of non-merging firms in their size deciles and their two-digit industry, in Canada, Australia and New Zealand roughly 16%, and in the four Scandinavian countries almost 15%. Further analysis indicates that some mergers are consistent with the hypothesis that mergers generate synergies, but that a majority of mergers in Continental Europe are explained by the managerial discretion and/or hubris hypothesis. Our findings also suggest that corporate governance institutions in the United States and the other Anglo-Saxon countries lead to better investment performance than in continental Europe, when one confines one's attention to mergers. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, an exploratory examination of the extent of differences across fifteen countries and three therapeutic classes (antihypertensives, antidepressants and antiepileptics) in the rate at which medicines in general and new medicines in particular are promoted and then diffuse, as well as relative new/old drug prices.
Abstract: We report on an exploratory examination of the extent of differences across fifteen countries and three therapeutic classes (antihypertensives, antidepressants and antiepileptics) in the rate at which medicines in general and new medicines in particular are promoted and then diffuse, as well as relative new/old drug prices. We find substantial heterogeneity across classes and countries in promotion and diffusion. In terms of diffusion, relative prices of old vs. new drugs, and intensity of detailing physicians, we find that somewhat surprisingly, the US is often ‘‘in the middle’’ relative to other countries, and is not an outlier. However, differences across classes are striking. Overall, new drug quantity elasticities with respect to own price are negative, ranging from about � 0.75 to � 1.1, while cross-price (new drug quantity with respect to old drug price) are positive but small. Total promotion effects on total utilization are generally positive, particularly antidepressants. Promotion of new drugs positively affects the new drug share, while promotion of old drugs negatively affects the new drug share. Promotion of old drugs is surprisingly substantial in some classes and countries. Copyright # 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the change in energy consumption in China's industrial sector in the 1990s, based on the data sets of value added and enduse energy consumption for the 29 industrial subsectors.
Abstract: There have been a variety of studies investigating the relative importance of structural change and real intensity change to the change in China’s energy consumption in the 1980s. However, no detailed analysis to date has been done to examine whether or not the increased energy efficiency trend in the 1980s still prevails in the 1990s. This article has filled this gap by investigating the change in energy consumption in China’s industrial sector in the 1990s, based on the data sets of value added and enduse energy consumption for the 29 industrial subsectors. Our results clearly show that the overwhelming contributor to the decline in industrial energy use in the 1990s was the decline in real energy intensity, indicating that the trend of real energy intensity declines in the 1980s at the 2-digit level was still maintained in the 1990s. This conclusion still holds even if we lower the growth rate dramatically in line with the belief that the growth rate of China’s GDP is overestimated.

Journal ArticleDOI
TL;DR: In this paper, the authors examine the conditions under which the growth option value embedded in such investments is enhanced, and find that investments in research and development and joint venture investments contribute to firms' growth option values.
Abstract: Real options theory models certain corporate investments as investments in growth options, yet there is little direct evidence on whether firms actually capture growth option value from these investments. In the current paper, we attempt to bridge this empirical gap, and we also examine the conditions under which the growth option value embedded in such investments is enhanced. Results from a sample of manufacturing firms during 1989–2000 reveal that investments in research and development and joint venture (JV) investments contribute to firms' growth option values. We also show that, among JVs of different ownership structures, only minority JVs increase growth option value. Our findings affirm options theory's assertion that real options can help firms capture valuable upside opportunities, they highlight the value of examining contingencies that drive option value, and they also point to the challenges firms face in realizing the unique benefits the theory emphasizes. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, the authors present direct, non-parametric microeconomic evidence on pricing behavior and evaluate the findings in light of theories of nominal price rigidity, including the durability of price quotations and the size of price changes.
Abstract: This paper presents direct, non-parametric microeconomic evidence on pricing behavior and evaluates the findings in light of theories of nominal price rigidity. The main issues examined include the durability of price quotations and the size of price changes. The analysis is based on a unique high-frequency panel data set of consumer prices recorded in 1993–1996 in Hungary. The results indicate that price adjustment patterns in the sample are primarily consistent with implications of two-sided (S,s) pricing models. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
Daniel Levy1
TL;DR: In this article, the authors summarized the eight studies of price rigidity that are included in this special issue, and summarized the important role of price rigidities in modern monetary economics and in monetary policy.
Abstract: The price system, the adjustment of prices to changes in market conditions, is the primary mechanism by which markets function and by which the three most basic questions get answered: what to produce, how much to produce and for whom to produce. To the behaviour of price and price system, therefore, have fundamental implications for many key issues in microeconomics and industrial organization, as well as in macroeconomics and monetary economics. In microeconomics, managerial economics, and industrial organization, economists focus on the price system efficiency. In macroeconomics and monetary economics, economists focus on the extent to which nominal prices fail to adjust to changes in market conditions. Nominal price rigidities play particularly important role in modern monetary economics and in the conduct of monetary policy because of their ability to explain short-run monetary non-neutrality. The behaviour of prices, and in particular the extent of their rigidity and flexibility, therefore, is of central importance in economics. This introductory essay briefly summarizes the eight studies of price rigidity that are included in this special issue.

Journal ArticleDOI
TL;DR: In this article, the authors examined how banking relationships and managerial ownership relate to firm valuation and found that increased external monitoring by banks will simultaneously raise the incentive on the part of managers to engage in internal monitoring.
Abstract: The paper examines how banking relationships and managerial ownership relate to firm valuation. It is argued that both the number of banking relationships (which serves as an external monitoring function) and managerial ownership (which serves as an internal monitoring function) affect firm value, while internal monitoring by managers and external monitoring by banks were viewed as substitutes or complements. After controlling for the effect of exogenous variables, the results reveal the existence of a complementary monitoring effect between banks and the managerial group. On the other hand, the results indicate that increased external monitoring by banks will simultaneously raise the incentive on the part of managers to engage in internal monitoring. Also, firm valuation is found to be a significant determinant of managerial ownership. A disaggregated analysis of firms according to size and leverage suggests the existence of a complementary monitoring effect between banks and managers, except for small-sized firms. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: The authors presented a four-level framework for analyzing structures within industries drawn from New Institutional Economics (NIE) which covers different approaches to strategic group formation from institutional isomorphism and embeddedness through to the firm-level effects of certain resource deployments.
Abstract: Rather than consider the two broad strands of strategic group research - performance-based and behavior-based studies - as competing approaches, we argue that they relate to complementary levels of analysis. We present a four-level framework for analyzing structures within industries drawn from New Institutional Economics (NIE) which covers different approaches to strategic group formation from institutional isomorphism and embeddedness through to the firm-level effects of certain resource deployments. We apply an institutional approach to a case study of the Australian banking industry and supplement this with a quantitative approach based around key strategic variables. This analysis suggests that distinct groups have emerged due to the institutional environment and the different regulatory environments experienced by various banks in the industry.

Journal ArticleDOI
TL;DR: In this paper, the authors present empirical evidence on the interplay important topics of consumer price rigidity and market power in the German food retail industry, addressing the causal relationship between market structure and pricing behavior highlighted in the industrial organization literature.
Abstract: This paper presents empirical evidence on the interplay important topics of consumer price rigidity and market power in the German food retail industry. In particular, the analysis addresses the causal relationship between market structure—collusion—and pricing behaviour highlighted in the industrial organization literature. Extensive analysis of retail scanner data across beef and pork products reveals considerable differences in price rigidity across store types. Supermarket pricing behaviour is evaluated with respect to all price changes retail sales action and price adjustments indicating that food discounters exhibit the highest degree of rigid prices. Retail concentration, as an important explanatory factor of price stickiness is investigated via the analysis of retail market power employing a conjectural-variation approach. The analysis of market conduct in the marketing of beef and pork products indicates simultaneous oligopolistic and oligopsonistic behaviour of retail firms. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: The authors investigate asymmetric price responses by considering a unique, highly disaggregate retailer- and product-level time series at a major supermarket chain and find asymmetry exists, but is limited in scope and there is no evidence of a pervasive chain wide asymmetric pricing strategy.
Abstract: We investigate asymmetric price responses by considering a unique, highly disaggregate retailer- and product-level time series at a major supermarket chain. We find asymmetry exists, but is limited in scope and there is no evidence of a pervasive chain wide asymmetric pricing strategy. To explain product level variation, we borrow from both economic and marketing perspectives to suggest menu costs, operational efficiency, competition, and consumer perceptions as important factors. The evidence suggests an efficiency-based rationale for asymmetry. This study complements that of Peltzman (2000. J. Polit. Econ. 108(3): 466–502.) who found no systematic asymmetry in a study of the same data considered at a more aggregate level. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this article, the authors examined the determinants of competition in the statins market across four European countries over the 1991-2002 period using IMS data from the UK, Germany, France and the Netherlands, and analyzed the potential existence of competition between branded statins prior to patent expiry.
Abstract: This paper examines the determinants of competition in the statins market across four European countries over the 1991–2002 period. Using IMS data from the UK, Germany, France and the Netherlands, the paper analyses the potential existence of competition between branded statins prior to patent expiry. Against a conceptual background of Cournot type quantity competition with product differentiation a demand function is estimated using panel data analysis for the first and second entrants on the market. The results indicate substitutability across the initial market entrants and the subsequent entrant only. This is consistent with potential price sensitivity in the branded market for statins, even when the overall size of market is growing. The results are indicative due to empirical issues surrounding endogeniety of the price variable. Copyright © 2007 John Wiley & Sons, Ltd.

Journal ArticleDOI
TL;DR: In this paper, a two-stage game where in the first stage, players can invest to lower their bid cost in a perfectly discriminating contest, which is played in the second stage, is studied.
Abstract: Perfectly discriminating contests (or all pay auction) are widely used as a model of situations where individuals devote resources to win some prize. In reality such contests are often preceded by investments of the contestants into their ability to fight in the contest. This paper studies a two stage game where in the first stage, players can invest to lower their bid cost in a perfectly discriminating contest, which is played in the second stage. Different assumptions on the timing of investment are studied. With simultaneous investments, equilibria in which players play a pure strategy in the investment stage are asymmetric, exhibit incomplete rent dissipation, and expected effort is reduced relative to the game without investment. There also are symmetric mixed strategy equilibria with complete rent dissipation. With sequential investment, the first mover always invests enough to deter the second mover from investing, and enjoys a first mover advantage. I also look at unobservable investments and endogenous timing of investments.