221 research outputs found
Global Initiatives in Reforming Rules and Regulations
No full textThis chapter first considers empirical evidence on the benefits of reforms and then addresses reform issues in particular markets. It examines patent mechanisms and R&D policies in innovation markets; optimal environmental regulations and their impact on innovation, investments, and prices; barriers to trade and competition, and the structure of regulatory agencies in telecommunications markets; and some key issues related to financial markets. The concluding section discusses alternative frameworks for assessing the functioning of markets and for evaluating rules and regulations
A new perspective on mergers and acquisitions: Evidence explained, policies prescribed
No full textÜbernahme, International, Takeover
Impact of Uncertainty and Sunk Costs on Firm Survival and Industry Dynamics
No full textIn theory, uncertainty and sunk costs can influence industry dynamics through the option value and financing constraints channels. Empirical evaluation of these models in the context of industry dynamics are, however, at a nascent stage. Our empirical analysis, covering 267 U.S. manufacturing industries over a 30-year period, reveals that greater uncertainty (i) decreases the number of small firms and establishments in high sunk cost industries, (ii) has virtually no impact on larger establishments, (iii) results in a less skewed size distribution of firms and establishments in high sunk cost industries and (iv) marginally increases industry output concentration. Addressing the recent literature, we also control for technological change and our estimates show that technical progress decreases the number of small firms and establishments in an industry. While past studies have emphasized technological change as a key driver of industry dynamics, our results indicate that uncertainty and sunk costs play a crucial role. Our findings could be useful for the study of firm survival, models of creative destruction, evolution of firm size distribution, mergers and acquisitions and competition policy.
Endemic Volatility of Firms and Establishments: Are Real Options Effects Important?
No full textConsider the intertemporal volatility of the number of firms and establishments within an industry over a relatively long span of time. Data from the U.S. manufacturing sector shows that this degree of endemic volatility varies widely across industries. Examining the determinants of this volatility is important in its own right as it reflects on the underlying forces governing entry and exit. In addition, data shows that the volatility of firms and establishments is significantly correlated with the volatility of the number of production and nonproduction workers employed in an industry. The primary focus of this paper is to evaluate the role played by the real options channel which suggests that sunk costs and uncertainty may be important determinants of the degree of volatility of the number of firms. We also control for other factors related to advertisingintensity, industry growth and technological change. An advantage of the manufacturing industry dataset we use in this study is that it combines the annual timeseries data from the Annual Survey of Manufactures with data from the five-yearly Census of Manufactures. This allows us to construct measures of uncertainty about profits, sunk capital costs, technological change, among others. Our key findings are: (1) industries with higher sunk capital costs and profit uncertainty have significantly lower endemic volatility of the number of firms and establishments; and (2) these relationships are non-linear as suggested by theory with even small amounts of sunk costs or profit uncertainty contributing to significantly lower firm volatility. Our findings appear broadly consistent with the predictions of the real options channel. We highlight some implications of our findings for antitrust/competition policy and labor market dynamics. ZUSAMMENFASSUNG - (Endemische Volatilität von Unternehmen und die Bedeutung von 'real option effects') Betrachtet man die intertemporale Schwankung der Anzahl von Unternehmen eines Industriezweigs über einen relativ langen Zeitraum, so zeigen Daten der U.S.amerikanischen verarbeitenden Industrie eine große Variation des Grades dieser endemischen Schwankungen zwischen unterschiedlichen Industriezweigen. Die Untersuchung der Determinanten dieser Volatilität ist für sich genommen bedeutsam, indem sie die Hintergründe für den Markteintritt und - austritt von Firmen beleuchtet. Darüber hinaus lässt sich eine hohe Korrelation zwischen der Schwankung in der Anzahl der Unternehmen und der Volatilität der Zahl der Arbeiter, die in der Produktion und in nicht-produzierenden Tätigkeiten beschäftigt sind, herstellen. Das Hauptaugenmerk dieses Papier ist es zu bewerten, welche Rolle der 'real options'- Kanal spielt, was impliziert, dass 'sunk costs' und Unsicherheit entscheidende Bestimmungsfaktoren für den Grad an Volatilität der Unternehmenszahl sind. Bei der Untersuchung werden auch andere Faktoren, die mit Werbungsintensität, Industriewachstum und technologischem Wandel verbunden sind, kontrolliert. Ein Vorteil des in der Analyse verwandten Datensatzes liegt darin, dass er jährliche Zeitreihendaten aus dem Jahresbericht des verarbeitenden Gewerbes der U.S.A. (Annual Survey of Manufacturers) mit Daten des Zensus des verarbeitenden Gewerbes, der fünfmal im Jahr erhoben wird, kombiniert. Das gestattet die Konstruktion von Maßzahlen zur Unsicherheit über Gewinne, versunkene Kapitalkosten, technologischen Wandel, etc.. Die Hauptergebnisse der Untersuchung sind: (1) Industriezweige mit höheren versunkenen Kapitalkosten und Gewinnunsicherheit zeichnen sich durch signifikant geringere endemische Volatilität in der Anzahl der Unternehmen aus; (2) diese Beziehungen sind nicht-linear, wie bereits die Theorie vermuten lässt, die besagt, dass schon geringe 'sunk costs' oder Gewinnunsicherheit zu bedeutend geringerer Schwankungsbreite in der Unternehmenszahl beitragen. Die Ergebnisse scheinen insgesamt mit den Aussagen zum 'real options'- Kanal übereinzustimmen. Einige Implikationen der Resultate für die 'Antitrust'- und Wettbewerbspolitik sowie Arbeitsmarkt-dynamik werden herausgestellt.Firm and establishment volatility; sunk capital costs; profit uncertainty; technological change; antitrust/competition policy; employment dynamics
Small is Beautiful but Size Matters: The Asymmetric Impact of Uncertainty and Sunk Costs on Small and Large Businesses
No full textAgainst the backdrop of the theories developed in the real options and financing constraints literatures, this paper examines the impact of profit uncertainty and sunk costs on firms’ entry and exit decisions. For our empirical analysis, we compile an extensive dataset containing information on 267 U.S. manufacturing industries over a 30-year period containing industry-specific information on the number of firms and establishments, the size distribution of establishments, measures of sunk capital costs and profit uncertainty, among others. Our dynamic panel data estimates show that greater uncertainty about profits, especially in conjunction with higher sunk costs, results in (1) a marked decrease in the number of small firms and establishments; (2) a less skewed size distribution of firms and establishments; and (3) a marginal increase in industry output concentration. In sharp contrast, large establishments seem virtually unaffected. The results point to uncertainty in conjunction with sunk costs fundamentally affecting firms’ decision-making and altering the structure of industries by putting smaller businesses at a disadvantage.Uncertainty; sunk costs; real options; financing constraints; decision-making; small businesses
Impact of Uncertainty and Sunk Costs on Firm Survival and Industry Dynamics
No full textThis paper examines the role played by uncertainty and sunk costs on the timeseries fluctuations in industry structure as captured by the number of firms and establishments, and concentration. Using an extensive dataset covering 267 U.S. manufacturing industries over a 30-year period, our estimates show that time periods of greater uncertainty, especially in conjunction with higher sunk costs, results in: (i) decrease in the number of small firms and establishments; (ii) less skewed size distribution of firms and establishments; and (iii) marginal increase in industry output concentration. Large establishments are virtually unaffected. We also control for technological change and our estimates show that technical progress decreases the number of small firms and establishments in an industry. While past studies have emphasized technological change as a key driver of industry dynamics, our results indicate that uncertainty and sunk costs play a crucial role. Our findings could be useful for competition policy, study of firm survival, models of creative destruction, evolution of firm size distribution, and mergers and acquisitions. ZUSAMMENFASSUNG - (Die Bedeutung von Unsicherheit und 'sunk costs' für das Überleben von Unternehmen und die Weiterentwicklung von Industrien) In diesem Diskussionspapier wird die Rolle untersucht, die Unsicherheit und 'sunk costs' auf die Zeitreihenfluktuationen in der Industriestruktur, wie sie durch die Anzahl der Unternehmen abgebildet wird, und in der Unternehmenskonzentration haben. Dafür wird ein umfassender Datensatz verwendet, der 267 Firmen des verarbeitenden Gewerbes in den U.S.A. über einen Zeitraum von 30 Jahren enthält. Unsere Schätzungen zeigen, daß sich Zeiten größerer Ungewißheit auf die Industrie auswirken, vor allem wenn die Unsicherheit mit höheren sunkcosts verbunden ist, indem (i) die Zahl kleinerer Unternehmen abnimmt; (ii) die Verteilung der Unternehmen nach ihrer Größe weniger schief-verteilt ist; und (iii) ein Grenzzuwachs an Outputkonzentration der Industrie zu verzeichnen ist. Große Einrichtungen bleiben dagegen nahezu unberührt. Wir habe unsere Untersuchung darüberhinaus auf technologischen Wandel hin kontrolliert und festgestellt, daß die technische Weiterentwicklung die Zahl der kleinen Unternehmen eines Industriezweigs ebenfalls reduziert. Während frühere Studien gerade den technologischen Wandel als den treibenden Faktor für die dynamische Entwicklung von Industrien herausgestellt haben, weisen unsere Ergebnisse allerdings den Faktoren Unsicherheit und 'sunk-costs' die entscheidende Rolle zu. Diese Ergebnisse können fruchtbar für weitere Studien im Bereich der Wettbewerbspolitik sein, für Studien zum Überleben von Firmen, für Modelle kreativer Zerstörung, der Evolution von Firmengrößenverteilung und nicht zuletzt für Unternehmensaufkäufe und -zusammenschlüsse (M&A).Industry dynamics, firm survival, firm size distribution, uncertainty, sunk costs, technological change, creative destruction, option value, financing constraints.
Investments in Modernization, Innovation and Gains in Productivity: Evidence from Firms in the Global Paper Industry
No full textThis paper examines the impact of investments in modernization and innovation on productivity in a sample of firms in the global pulp and paper industry. This industry is important because it has traditionally accounted for significant amounts of employment and capital investment in North America and Europe. In contrast to much of the existing literature which focuses on the impact of R&D and patents on firms’ performance and productivity, we examine data on actual investment transactions in four main areas of operations: (i) mechanical, (ii) chemicals, (iii) monitoring devices and (iv) information technology. We find that firms which made decisions to implement a greater number of investment transactions in modernization achieved higher productivity, and these estimated quantitative effects are greater than the impact of standard innovation variables such as patents and R&D. Investment transactions in the information technology and digital monitoring devices imparted a particularly noticeable boost to productivity. These results are obtained after controlling for other firm-specific variables such as capital-intensity and mergers and acquisitions. Two broad messages emerge from our study. First, firms’ decisions to undertake investments in modernization and various forms of incremental innovations appear to be critical for achieving gains in productivity. While these may typically generate small gains on a year-to-year basis, they can compound to form meaningful differences in performance, productivity and competitive position across firms in the longer-run. Second, for some of the traditional industries like pulp and paper, R&D and patents seem to be particularly poor indicators of innovation and, more generally, how firms go about achieving gains in productivity. While this paper focuses on the pulp and paper industry, our broad framework and methodology is general and can be applied to understanding firms’ strategies related to enhancing performance and productivity in a variety of industries.Pulp and paper industry; investment; modernization; innovation; productivity; organizational behavior
Discovering Cartels: Dynamic Interrelationships between Civil and Criminal Antitrust Investigations
No full textThis paper focuses on the genesis, taxonomy and timeline of U.S. criminal antitrust investigations, and uses time-series data on enforcement to examine the interrelationships between the various criminal enforcement variables as well as the linkages between criminal and civil enforcement. The key findings are: (1) there appears to be considerable dynamic interplay between the criminal variables. For example, an increase in grand jury investigations or criminal cases initiated or the number of individuals or firms convicted generates increases in most of these (endogenous) variables in future periods. A broad conclusion that can be drawn is that information unearthed during a given criminal investigation and prosecution often reveals information about other conspiracies leading to future investigations and prosecutions; (2) an increase in civil enforcement leads to future increases in the criminal cases and firms and individuals convicted. This suggests that information gleaned during civil investigations, such as mergers or monopolization cases, may reveal information about collusive behavior in markets leading to criminal investigations and prosecutions; and (3) criminal enforcement follows a counter-cyclical pattern with the number of criminal cases prosecuted increasing following an economic downturn. We relate this to the literature which points to cartel instability during economic downturns. Overall, our results point to complementarities in the investigative process within different facets of criminal investigations as well as between criminal and civil investigations.Cartels; Antitrust Enforcement; Prosecution; Business Cycles
The Law and Economics of Enhancing Cartel Enforcement: Using Information from Non-Cartel Investigations to Prosecute Cartels
No full textI present the following proposal: information revealed during non-cartel investigations by competition law enforcement authorities, such as evaluation of M&As or investigation of monopolization (dominance) conduct, should be directly used to investigate and prosecute cartels. Currently, in several jurisdictions, information acquired in, for example, a M&A investigation typically cannot be directly used for a cartel case due to the underlying statutes and the legal and administrative procedures that govern information use. Reviewing the management and corporate strategy literature, I note that M&As form a vital part of firms’ core business strategy, with the longer-run strategic aspects being more important. These longer-run strategies could be jeopardized if the firms were engaging in collusion, as the likelihood of detection and prosecution would increase under the proposed rule change, which would punish bad (collusive) behavior. I argue that irrespective of exactly how many cartels are actually prosecuted via this channel, the proposal has the likelihood of creating a meaningful deterrence effect. I also discuss the potential downsides related to Type 1 errors and administrative costs. Overall, I argue that the proposed rule change could increase the efficiency and effectiveness of cartel enforcement, and open an additional front in the fight against hardcore cartels that operate within jurisdictions as well as internationally.cartels, enforcement, law and economics
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