Firms’ Strategic Decisions: Theoretical and Empirical Findings

Volume 1

by

Kazuhiro Ohnishi

DOI: 10.2174/97816810803831150101
eISBN: 978-1-68108-038-3, 2015
ISBN: 978-1-68108-039-0
ISSN: 2405-8424 (Print)
ISSN: 2405-8432 (Online)



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This eBook presents recent case studies on firms and their strategy employed in specific scenarios and industries. Readers will find, ...[view complete introduction]

Table of Contents

Foreword

- Pp. i

Leonard F. S. Wang

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Preface

- Pp. ii-iv (3)

Kazuhiro Ohnishi

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List of Contributors

- Pp. v

Kazuhiro Ohnishi

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Two Subcontracting Systems and Competitive Advantage

- Pp. 3-25 (23)

Dong Joon Lee, Tatsuhiko Nariu and Tatsuya Kikutani

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On the Relationship between Merger Profitability and the Degree of Competition

- Pp. 26-38 (13)

Marc Escrihuela-Villar

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Double-Sided Moral Hazard and Margin-Based Royalty

- Pp. 39-54 (16)

Tatsuhiko Nariu, Kaoru Ueda, Dong Joon Lee and Shunsuke Shimizu

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Strategic Price and Quantity Choices

- Pp. 55-76 (22)

Daniel Cracau

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Strategic Responses Towards Socially Concerned Customers

- Pp. 77-87 (11)

Daniel Cracau

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Strategic Investment Decisions in a Continuous- Time Dynamic Model with Complementary Goods

- Pp. 88-97 (10)

Kazuhiro Ohnishi

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Entry Deterrence in a Cournot Model

- Pp. 98-113 (16)

Kazuhiro Ohnishi

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Consistent Conjectural Variations Equilibrium in a Mixed Oligopoly with a Labor Input Function

- Pp. 114-138 (25)

Vyacheslav V. Kalashnikov, Vitaliy V. Kalashnikov-Jr, Aarón Arévalo Franco and Felipe J. Castillo Pérez

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Wage-Rise Contract and a Three-Stage Model with State-Owned and Labour-Managed Firms

- Pp. 139-154 (16)

Kazuhiro Ohnishi

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Lifetime Employment and a Three-Stage Model with State-Owned and Joint-Stock Firms

- Pp. 155-169 (15)

Kazuhiro Ohnishi

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The Effect of Strategic Firm Objectives on Competition

- Pp. 170-181 (12)

Daniel Cracau

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Quantity Precommitment and Mixed Duopoly with Price Competition

- Pp. 182-194 (13)

Kazuhiro Ohnishi

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Pricing-to-Market in Japanese Autos at the Retail Level

- Pp. 195-208 (14)

Craig R. Parsons

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What Determines the Choice of Being Multiple- Banked? Evidence from Italian Small Businesses

- Pp. 209-228 (20)

Mariarosaria Agostino, Sabrina Ruberto and Francesco Trivieri

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Strategic Decision Making: The Case of the Displaced Unorganized Retail Firms by the Organized Corporate Businesses in India

- Pp. 229-244 (16)

Kaliappa Kalirajan and Kanhaiya Singh

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Author Index

- Pp. 245-248 (4)

Kazuhiro Ohnishi

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Subject Index

- Pp. 249-250 (2)

Kazuhiro Ohnishi

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Foreword

The present eBook series edited and managed by Dr. Ohnishi, offers new challenges to Industrial Organization (IO) economists since it delivers advance game-theoretical works to many on-going IO issues. In this book, it covers many topics that students and young researchers need to learn in an IO course. It not only reviews the classic Cournot and Bertrand models, but also provides further elaborations of many important issues including merger paradox, subcontracting systems, market entry deterrence, the choices of competition modes. Besides, the mixed oligopoly literature are extended for tackling the issues of consistent conjectural variations equilibrium with labor input function, wage-rise contract, lifetime employment, and quantity pre-commitment. A collection of books without connecting with empirical studies would be lost the ground of supported by industrial reality, and the readers could find three empirical works taking into consideration of different industries of Japan, Italy and India.

In this particular volume, a nice job is done of bridging pure economic theories with Industry-level empirical works. Moreover, authors that joined this volume have done a great deal of work on IO issues which will be useful for the researchers working on the areas of international trade, labor economics and environmental economics.

Leonard F. S. Wang
NUK Chair Professor
Department of Applied Economics
National University of Kaohsiung
Taiwan


Preface

Firms’ strategic decisions in oligopolistic and monopolistic industries are one of the most important themes that attract the interest of many researchers in the fields of microeconomics, industrial organization, and so forth. This book contains current empirical as well as theoretical studies on strategic firm behavior and is composed of fifteen chapters. Each chapter presents current theoretical or empirical findings, and develops the economic analysis of strategic firm behavior.

The first six chapters investigate firms’ strategic decisions in oligopolistic and monopolistic industries based on the economic theory of profit-maximizing behavior. The first chapter compares the subcontracting systems of the U.S. and Japanese automotive industries using a threestage duopoly model. It is then found that the international competitiveness of Japanese automakers is created by the cooperative relationship between automaker and supplier as well as the supplier’s high skill and ability. The second chapter examines the conjectural variations solution of an oligopoly model with homogeneous and quantity-setting firms where first a merger among firms may occur and second firms produce. It is then shown that the effects of the wellknown merger paradox on merger profitability might be alleviated if the degree of competition is considered. The third chapter uses a model consisting of a franchiser and a franchisee and investigates royalty modes in the franchise arrangements of convenience stores under double-sided moral hazard. It is then shown that a franchisor can achieve the first-best outcome by adopting margin-based royalties under double-sided moral hazard. Chapter 4 gives a complete comparison of the classical duopoly games with linear demand and constant marginal cost, and fills the gap in the literature on classical oligopoly competition. Chapter 5 considers a model that captures the idea of customers’ disutility from firms’ profits and studies the effect of customers’ social concern on equilibrium outcomes in monopolistic and oligopolistic markets. It is then shown that customers’ social concern leads to lower equilibrium prices but has no effect on optimal quantities. Chapter 6 considers a continuous-time infinite-horizon duopoly model with complementary goods, and investigates the optimal level of labor investment by duopoly firms in a new complementary goods industry. This chapter finds that there are multiple equilibrium outcomes where the firms invest beyond their steady-state reaction curves.

The seventh chapter considers a two-stage Cournot model with one established firm and one potential entrant and examines the entry-deterring equilibrium outcomes resulting from the strategic commitments by the established firm. The main result of this chapter states that strategic commitments can be used as a powerful tool for entry deterrence in quantity-setting competition.

Chapters 8-12 investigate not only the behavior of profit-maximizing capitalist firms but also the behavior of labor-managed, state-owned and joint-stock firms. Chapter 8 examines a structure of conjectural variations equilibrium in a mixed oligopoly model with profit-maximizing and labormanaged firms. This chapter proves the existence and uniqueness theorems for the conjectured variations equilibrium for all collections of feasible conjectures and introduces the perception of interior equilibrium based upon a criterion of consistency for the conjectures. Chapter 8 also establishes the existence of at least one consistent conjectural variations equilibrium state. Chapter 9 examines a three-stage mixed duopoly model in which a state-owned firm and a labor-managed firm can sequentially offer a wage-rise contract as a strategic commitment before competing in quantities. It is then shown that introducing a wage-rise contract as a strategic device into the model of three-stage mixed duopoly is not beneficial for either the labor-managed or the stateowned firm. Chapter 10 examines a three-stage mixed duopoly model in which a state-owned firm and a joint-stock firm are allowed to offer lifetime employment as a strategic device before competing in quantities, and shows that introducing lifetime employment into the model of threestage mixed duopoly is beneficial for the state-owned firm. Chapter 11 proposes a generalized form of firms’ objective function. This chapter considers two distinct concerns: consumer surplus and competitors’ profits, and examines a duopoly game to compare the effects of both concerns on equilibrium outcomes. It is then shown the behaviors of a socially concerned firm and a partially cooperating firm by using a Cournot game. Chapter 12 investigates a price-setting mixed duopoly model in which a state-owned public firm and a capitalist private firm are allowed to offer lifetime employment as a strategic commitment, and finds that the result of the analysis of price-setting mixed duopoly competition with lifetime employment may be beneficial for the stateowned public firm.

Chapters 13-15 provide significant empirical contributions. Chapter 13 estimates the extent of Pricing-to-Market for Japanese automobiles exported to the U.S. over the 1987-2000 period. This chapter finds a high degree of Pricing-to-Market behavior in Japanese auto exports to the U.S., at least over the 1987-2000 period. Chapter 14 takes advantage of a unique panel of small and medium-sized manufacturing firms in Italy over the 1998-2006 period, and studies the determinants of multiple lending relationships in a country where small businesses are the heart of the productive structure. It is then shown that larger, more indebted and innovative firms tend to increase the propensity to establish multiple relationships, while higher amounts of debt granted by a main bank seem decreasing the propensity of being multiple-banked. Chapter 15 uses the primary survey data collected from the National Capital Region and Chennai in South India between November 2008 and March 2010, and investigates the question of whether opening up the market for foreign direct investment in retail businesses will be a hindrance to the survival of the small unorganized retail outlets. This chapter finds that the organized corporate retail businesses did displace some small unorganized retail outlets, and the displaced small unorganized retail outlets relocated themselves in fringe areas of the cities and earned more profitable.

As seen above, this book contains the important findings of theoretical and empirical researches on strategic decisions by firms. The chapters in this book cover and develop a wide and varied range of important aspects of firm behavior, such as subcontracting systems, horizontal mergers, franchise arrangements, oligopoly competition, investment decisions, entry deterrence, mixed oligopoly, lifetime employment, partial privatization, pricing-to-market, multiple banking relationships and location choice. All the chapters make significant contributions in areas that have been neglected by previous studies. This book is suitable for those studying firm behavior in the fields of economics, business administration and engineering, including academics, professionals, policymakers and graduate students. The level of the book may be a little advanced for undergraduate students.

This volume presents a collection of fifteen high-quality studies completed before 2015. Later volumes will also contain the latest studies by many eminent researchers all over the world.

I regret that there are few empirical studies in this volume. However, three empirical papers contained in the volume are all excellent and deal with quite interesting topics. In later volumes, I will collect and edit more theoretical and empirical papers on firms’ strategic decisions. Finally, I am most grateful to Professor Leonard F. S. Wang of the National University of Kaohsiung for writing the foreword. I would also like to thank anonymous reviewers for valuable comments and Bentham Science Publishers, particularly Fariya Zulfiqar and Salma Sarfaraz for their kind support and help.

Kazuhiro Ohnishi
Institute for Basic Economic Science
Osaka
Japan

List of Contributors

Editor(s):
Kazuhiro Ohnishi
Institute for Basic Economic Science
Osaka
Japan




Contributor(s):
Mariarosaria Agostino
Department of Economics, Statistics and Finance
University of Calabria
Arcavacata di Rende (CS)
Italy


Aarón Arévalo Franco
Tecnológico de Monterrey (ITESM)
Monterrey
Mexico


Felipe J. Castillo Pérez
Tecnológico de Monterrey (ITESM)
Monterrey
Mexico


Daniel Cracau
University of Magdeburg
Faculty of Economics and Management
Magdeburg
Germany


Marc Escrihuela-Villar
Department of Applied Economics
University of the Balearic Islands
Palma de Mallorca
Spain


Vitaliy V. Kalashnikov Jr
Department of Economics
Autonomous University of Nuevo León (UANL)
Monterrey
Mexico


Vyacheslav V. Kalashnikov
Department of Systems and Industrial Engineering (IIS)
Tecnológico de Monterrey (ITESM)
Monterrey
Mexico


Kaliappa Kalirajan
Crawford School of Public Policy
The Australian National University
Canberra
Australia


Tatsuya Kikutani
Department of Economics
Kyoto University
Kyoto
Japan


DongJoon Lee
Faculty of Management
Nagoya University of Commerce and Business
Nisshin-shi
Japan


Tatsuhiko Nariu
Graduate School of Business and Administration
Kyoto University
Kyoto
Japan


Kazuhiro Ohnishi
Institute for Basic Economic Science
Osaka
Japan


Craig R. Parsons
Department of Economics
Yokohama National University
Yokohama
Japan


Sabrina Ruberto
Department of Economics, Royal Holloway
University of London
Egham
UK


Shunsuke Shimizu
Graduate School of Economics
Nanzan University
Nagoya
Japan


Kanhaiya Singh
National Council of Applied Economic Research
New Delhi
India


Francesco Trivieri
Department of Economics, Statistics and Finance
University of Calabria
Arcavacata di Rende (CS)
Italy


Kaoru Ueda
Graduate School of Economics
Nanzan University
Nagoya
Japan




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