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Volume 28, Issue 4, Winter 2019

Does capital structure differently affect incumbents’ responses to entry threat and actual entry?
Chao Ma

Some theories predict that firms with higher financial leverage compete more aggressively in product markets than firms with lower financial leverage, whereas others predict that lower‐leverage firms compete more aggressively than higher‐leverage firms. This paper studies how incumbent airlines’ capital structure affects their responses to Southwest Airlines’ entry threat and actual entry. The results indicate that, when responding to entry threat, lower‐leverage incumbents cut prices more aggressively than higher‐leverage incumbents; in contrast, when responding to actual entry, higher‐leverage incumbents cut prices more aggressively than lower‐leverage incumbents.

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Chao Ma

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      3. Endowment Origin, Demographic Effects, and Individual Preferences in Contests, by Curtis R. Price and Roman M. Sheremeta, Fall 2015
      4. The Provision of Relative Performance Feedback: An Analysis of Performance and Satisfaction, by Ghazala Azmat and Nagore Iriberri, Spring 2016
      5. Promotion Signals, Experience, and Education, by Michael Bognanno and Eduardo Melero, Spring 2016
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    4. A Practitioner’s Guide to Estimation of Random‐Coefficients Logit Models of Demand, by Aviv Nevo, Winter 2000
    5. An Empirical Analysis of the Strategic Use of Corporate Social Responsibility, by Donald S. Siegel Donald F. Vitaliano, Fall 2007

Recently Published Articles

Volume 29, Issue 2, Summer 2020 (current issue)

Merchants of doubt: Corporate political action when NGO credibility is uncertain

Mireille Chiroleu‐Assouline and Thomas P. Lyon
The literature on special interest groups emphasizes two main influence channels: campaign contributions and informational lobbying. We introduce a third channel: providing information about the credibility of political rivals.

Don't patronize me! An experiment on preferences for authorship

Silvia Lübbecke and Wendelin Schnedler
Do people only reject interference and keep control to affect the outcome? We find that 20% of subjects reject unrequired help and insist on their solution to a problem—although doing so is costly and does not change the result. We tease out the motives by varying the information available to the interfering party (paternalist).

Inefficient incentives and nonprice allocations: Experimental evidence from big‐box restaurants

Sacha Kapoor
Queues are puzzling because they are consistent with wasted profit in equilibrium. Standard rationales trace the puzzle to the pricing of goods. This article uses field experimental evidence from large‐scale restaurants to trace the puzzle to the pricing of labor.

Contests over joint production on networks

Serhat Doğan, Kerim Keskin, and Çağrı Sağlam
We consider a network of heterogeneous agents where each edge represents a two‐player contest between the respective nodes. In these bilateral contests, agents compete over an endogenous prize jointly produced using their own contest efforts. We provide a necessary and sufficient condition for the existence of Nash equilibrium and characterize the equilibrium total effort for every agent.

Strategic shirking in competitive labor markets: A general model of multi‐task promotion tournaments with employer learning

Jed DeVaro and Oliver Gürtler
In a multitask, market‐based promotion tournament model, under different environments concerning employer learning about worker ability, it is shown that: (a) asymmetric learning in multitask jobs is a necessary condition for “strategic shirking” (i.e., underperforming on certain tasks to increase the promotion probability); (b) when learning becomes increasingly symmetric on one task, the effort allocated to that task could increase or decrease, but effort on the other task increases; (c) strategic shirking does not occur in equilibrium in single‐task models; and (d) promotions signal worker ability even when there is symmetric learning on one task, if learning is asymmetric on another.

Self‐managed work teams: An efficiency‐rationale for pay compression

Nana Adrian and Marc Möller
This paper uncovers a novel mechanism through which pay dispersion can have a negative effect on firm performance, even in the absence of equity or fairness considerations.

Hospital competition under pay‐for‐performance: Quality, mortality, and readmissions

Domenico Lisi, Luigi Siciliani, and Odd Rune Straume
Health outcomes, such as mortality and readmission rates, are commonly used as indicators of hospital quality and as a basis to design pay‐for‐performance (P4P) incentive schemes. We propose a model of hospital behavior under P4P where patients differ in severity and can choose hospital based on quality. We assume that risk‐adjustment is not fully accounted for and that unobserved dimensions of severity remain. We show that the introduction of P4P which rewards lower mortality and/or readmission rates can weaken or strengthen hospitals' incentive to provide quality.

Movie release strategy: Theory and evidence from international distribution

Luís Cabral and Gabriel Natividad
Choosing the right time to release a new movie may be the difference between success and failure. Prior research states that the “bigger” a blockbuster is, the more likely it is (and should be) released during a high‐demand week. We present a theoretical framework which is consistent with this observation but adds a rather surprising theoretical prediction: among non‐blockbuster (i.e., niche) movies, everything else constant, the greater a movie's appeal, the more likely it is released during a low‐demand week.

Revealing transactions data to third parties: Implications of privacy regimes for welfare in online markets

Michael R. Baye and David E. M. Sappington
We examine the effects of privacy policies regarding transactions (e.g., price/quantity) data on online shopping platforms. Disclosure of transactions data induces consumer signaling behavior that affects merchant pricing decisions and the welfare of platform participants.

Volume 29, Issue 1, Spring 2020

Vertical structure and the risk of rent extraction in the electricity industry

Anette Boom and Stefan Buehler
This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry.

On the corporate use of green bonds

Mark Bagnoli and Susan G. Watts
We show that in less competitive retail markets when retailers can “skim” more of the premium that end consumers pay for socially responsible products, green bonds provide additional funds to help cover the cost of a wholesaler's socially responsible activities.

Asymmetric‐information allocation to avoid coordination failure

Fumitoshi Moriya and Takuro Yamashita
In the context of team production, this paper studies the optimal (deterministic and stochastic) information allocation that implements desired effort levels as the unique Bayesian equilibrium. We show that under certain conditions, it is optimal to asymmetrically inform agents even though they may be ex ante symmetric.

Savings that hurt: Production rationalization and its effect on prices

Mauricio Varela and Madhu Viswanathan
Production rationalization, the process of reallocating production across facilities so as to reduce total costs, results in firms equating marginal costs across markets. This results in marginal costs, and hence prices, being higher in some markets and lower in others than otherwise would be without production rationalization. This paper proposes a model of competition that elicits these effects and the resulting consequences on consumer and producer surplus.

The impact of job training on temporary worker performance: Field experimental evidence from insurance sales agents

Elizabeth Lyons
Using evidence from a field experiment conducted among salespeople in a Kenyan insurance firm, this paper examines the consequences of providing job training for temporary workers. The findings show that providing access to training significantly increases firm revenue, primarily due to performance increases among higher‐ability workers.

Bait and ditch: Consumer naïveté and salesforce incentives

Fabian Herweg and Antonio Rosato
We analyze a model of price competition between a transparent retailer and a deceptive one in a market where a fraction of consumers is naïve.

Can consumer complaints reduce product reliability? Should we worry?

Joaquín Coleff
We analyze a monopolist's pricing and product reliability decision in a model where consumers are entitled to product replacement if the product fails, but have heterogeneous costs of exercising this right. Our main result shows that, under some conditions, a decrease in consumers expected to claim cost leads to a decrease in product reliability but an increase in profit and welfare.

Vertical integration and disruptive cross‐market R&D

Ping Lin, Tianle Zhang, and Wen Zhou
We study how vertical market structure affects the incentives of suppliers and customers to develop a new input that will enable the innovator to replace the incumbent supplier.

Intermediated surge pricing

Sushil Bikhchandani
Although Uber and Lyft are known for their flexible “surge pricing,” they are surprisingly rigid in another way: each firm takes a constant percentage of passenger fare whether or not there is a surge. In this paper, I investigate the possible reasons for, and the impact of, this rigidity.

Volume 28, Issue 4, Winter 2019

The impact of the number of sellers on quantal response equilibrium predictions in Bertrand oligopolies

Ralph‐C. Bayer, Chaohua Dong, and Hang Wu
This paper studies how increasing the number of sellers in a Bertrand oligopoly with homogenous goods affects the equilibrium price level predicted by logistic quantal response equilibrium (LQRE) and power‐function QRE (PQRE).

Automatic‐renewal contracts with heterogeneous consumer inertia

Johannes Johnen
Automatic contract renewals are a common feature in consumer markets. Since these contracts renew automatically unless a consumer actively cancels, firms can use them to exploit consumer inertia. As a source of inertia I study limited attention and investigate how firms use contract renewal to sell to consumers with different degrees of inattention.

Optimal team composition for tool‐based problem solving

Jonathan Bendor and Scott E Page
In this paper, we construct a framework for modeling teams of agents who apply techniques or procedures (tools) to solve problems. In our framework, tools differ in their likelihood of solving the problem at hand; agents, who may be of different types, vary in their skill at using tools. We highlight three main findings: First, that cognitively diverse teams are more likely to solve problems in both settings. Second, that teams consisting of types that master diverse tools have an indirect strategic advantage because tool diversity facilitates coordination. Third, that strategic tool choice creates counterintuitive optimal hiring practices.

Team formation with complementary skills

Mürüvvet Büyükboyaci and Andrea Robbett
One explanation for the prevalence of self‐managed work teams is that they enable workers with complementary skills to specialize in the tasks they do best, a benefit that may be enhanced if workers can sort themselves into teams. To assess this explanation, we design a real‐effort experiment to study the endogenous formation of teams, and its effect on productivity, when specialization either is or is not feasible.

Dynamic incentive effects of assignment mechanisms: Experimental evidence

Thomas Gall, Xiaocheng Hu, and Michael Vlassopoulos
Optimal assignment and matching mechanisms have been the focus of exhaustive analysis. We focus on their dynamic effects, which have received less attention, especially in the empirical literature: Anticipating that assignment is based on prior performance may affect prior performance. We test this hypothesis in a lab experiment.

Trading places: An experimental comparison of reallocation mechanisms for priority queuing

Anouar El Haji Sander Onderstal
In a laboratory experiment, we compare two auction mechanisms that are designed to improve a queue's efficiency by allowing customers to trade places.

Wage delegation in the field

Sabrina Jeworrek and Vanessa Mertins
By conducting a natural field experiment, we analyze the managerial policy of delegating the wage choice to employees. We find that this policy enhances performance significantly, which is remarkable since allocated wage premiums of the same size have no effect at all.

When the principal knows better than the agent: Subjective evaluations as an optimal disclosure mechanism

Mengxi Zhang
When the firm has some private and unverifiable information about an employee’s ability, it can design a subjective evaluation mechanism, whereby payments are tied to evaluations, to communicate such information. In this paper, I investigate how to design an optimal disclosure mechanism for the firm.

Potential competition and quality disclosure

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This study presents a model of quality disclosure in which an incumbent, through its quality and disclosure choices, influences the potential that a new entrant enters the market.

Volume 28, Issue 3, Fall 2019

Exporting firms and retail internationalization: Evidence from France

Angela Cheptea, Charlotte Emlinger, and Karine Latouche
This paper questions the impact of the globalization of the retail sector on the export activity of origin country agri‐food firms. We use an original firm‐level database of French agri‐food exports that identifies the domestic suppliers of French retailers through certification with the private International Featured Standard (IFS). The results show that IFS certified French firms are more likely to export and export larger volumes than noncertified firms to markets where French retailers have established outlets.

Moral management in competitive markets

Steve Martin
The intrinsic motivation of a firm’s management for engaging in prosocial behavior is an important determinant of a firm’s social conduct. I provide the first model in which firms run by morally motivated managers engage in corporate social responsibility (CSR) in a competitive setting.

Biased recommendations from biased and unbiased experts

Wonsuk Chung and Rick Harbaugh
When can you trust an expert to provide honest advice? We develop and test a recommendation game where an expert helps a decision maker choose among two actions that benefit the expert and an outside option that does not. The results highlight that the transparency of expert incentives can improve communication, but need not ensure unbiased advice.

Wholesale price discrimination: Innovation incentives and upstream competition

Uğur Akgün and Ioana Chioveanu
In intermediate good markets where there are alternative supply sources, wholesale price discrimination may enhance innovation incentives downstream. We consider a vertical chain where a dominant firm and a competitive fringe supply imperfect substitutes to duopoly retailers which carry both varieties.

Repeated interaction in standard setting

Pierre Larouche and Florian Schuett
Standardization may allow the owners of standard‐essential patents to charge higher royalties than would have been negotiated ex ante. In practice, however, standard‐setting efforts are often characterized by repeated interaction and complementarities among technologies.

Technological and organizational capital: Where complementarities exist

Tobias Stucki and Daniel Wochner
This study analyzes the complementarities between technological and organizational capital within enterprises. Our empirical results show that whereas greater employee voice promotes firm productivity when combined with information technology, it harms firm productivity when combined with communication technology. On the other hand, flexible work design is positively associated with communication technology and negatively associated with information technology.

Points mechanisms and rewards programs

Emil Temnyalov
I study points programs, such as frequent flyer and other rewards programs, as a revenue management tool. I develop a two‐period contracting model where a capacity‐constrained firm faces consumers who privately learn their valuations over time.

Can platform competition support market segmentation? Network externalities versus matching efficiency in equity crowdfunding markets

Esther Gal‐Or, Ronen Gal‐Or, and Nabita Penmetsa
We investigate whether, in spite of the existence of cross‐market network externalities, platform competition can lead to segmentation of the two sides of the market served by the platforms.

Updates management in mobile applications: iTunes versus Google Play

Stefano Comino, Fabio M. Manenti, and Franco Mariuzzo
This paper focuses on a specific strategy that developers of mobile applications may use to stimulate demand: The release of updates. We develop a theoretical analysis that shows that developers have incentives to release updates when experiencing a drop in performance. The predictions of the model are then tested using an unbalanced panel of top 1,000 apps in iTunes and Google Play for five European countries.

Volume 28, Issue 2, Summer 2019

Calendar synchronization of gasoline price increases

Michael D. Noel
In many retail gasoline markets with Edgeworth price cycles, large and regular price increases occur on the same day of the week every week, that is, they are calendar synchronized. In this article, I test whether calendar synchronization leads to higher or lower consumer expenditures on gasoline compared to a world with cycles but without calendar synchronization.

Do discriminatory leniency policies fight hard‐core cartels?

Georg Clemens and Holger A. Rau
This paper experimentally analyzes the effects of nondiscriminatory and discriminatory leniency policies on hard‐core cartels. We design a mechanism to form a hard‐core cartel, which allows that multiple ringleaders emerge.  We find that firms create trust among other firms when acting as ringleaders. This signaling effect ultimately facilitates coordination in the explicit cartel.

Political contestability and public contract rigidity: An analysis of procurement contracts

Jean Beuve, Marian W. Moszoro, and Stéphane Saussier
Using a comprehensive set of contracts for a standard product, we compare procurement contracts in which the procurer is either a public administration or a private corporation. We find that public‐to‐private contracts feature more rigidity clauses than private‐to‐private contracts and that the use of rigidity clauses in public contracts rises when political risks are more salient. We argue that a significant part of the increased rigidity of public contracts is a contractual adaptation to limit political hazards from political opponents and interested third parties.

Vague lies and lax standards of proof: On the law and economics of advice

Mikhail Drugov and Marta Troya‐Martinez
This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers.

Competitive strategy for open and user innovation

Gastón Llanes
I study the incentives to open technologies in imperfectly competitive markets with user innovation. I find that large firms are less open and invest more in product development than small firms, and that firms react to greater openness from rivals by becoming more open.

Value capture in hierarchically organized value chains

Joachim Henkel and Alexander Hoffmann
We study how the structure of negotiations in a value chain affects the distribution of value among its members. To this end, we generalize the Shapley value and the core to hierarchical bargaining situations.

Media market concentration and pluralism

Torben Stühmeier
We study the relationship between market concentration and market variety, and thereby focus on two dimensions of variety, namely on internal variety and on external variety. In our setup, firms can expand their internal variety continuously around their focus point on a Salop‐circle. External variety then refers to the market supply of variety offered by all firms on the circle. We believe that this setting is particularly applicable to media.

Can social media lead to labor market discrimination? Evidence from a field experiment

Matthieu Manant, Serge Pajak, and Nicolas Soulié
In this paper, we investigate the role of social media as a source of information for recruiters to discriminate applicants. We set up a field experiment over a 12‐month period, involving more than 800 applications from two fictitious applicants which differed in their perceived origins, which is an information available only from their Facebook profiles.

Strategic attractiveness and release decisions for cultural goods

Paul Belleflamme and Dimitri Paolini
We study how producers of cultural goods can strategically invest in raising the attractiveness of their goods in order to secure the most profitable release dates. Results are consistent with the theoretical predictions, indicating that higher budget movies are released closer to seasonal demand peaks.