Issue 3

Volume 25 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Fall 2016

Customer Privacy and Competition

Oz Shy, Rune Stenbacka
We analyze how different degrees of privacy protection affect industry profits, consumer welfare, and total welfare in a model with switching costs.

Imperfect Behavior-Based Price Discrimination

Stefano Colombo
In this article, we develop a model encompassing behavior-based discriminatory pricing as a limit case of a more general framework where firms have incomplete information about consumers’ purchase histories.

Self-Regulation and the Market for Activism

David P. Baron
This paper presents a theory of the market for activism where citizens fund activists, campaigning activists pressure firms to change their practices, and firms self-regulate to forestall or mitigate campaigns.

Task-Specific Human Capital and Organizational Inertia

Josse Delfgaauw, Otto H. Swank
We develop a simple two-period principal–agent model showing that some degree of inertia benefits the principal. We then analyze how organizations can optimally combine several policies to approach the optimal degree of inertia. In particular, we consider the optimal mixture of (abstaining from) exploration, managerial vision, organizational task-specific investments, and incentive pay. Our analysis yields testable predictions concerning the relations between these organizational policies.

Human Capital Investment and Work Incentives

Matthias Kräkel
I show under which conditions firms do not offer firm-specific training but invest in general human capital, which increases the workers' outside option. This investment behavior is well in line with the documented prevalence of industry-specific and occupation-specific human capital over firm-specific human capital.

The Value of Employee Retention: Evidence From a Natural Experiment

Kenneth A. Younge, Matt Marx
We estimate the firm-level returns to retaining employees using difference-in-differences analysis and a natural experiment where the enforcement of employee noncompete agreements was inadvertently reversed in Michigan. We find that noncompete enforcement boosted the short-term value of publicly traded companies by approximately 9%. The effect is increasing in local competition and growth opportunities, and offset by patenting.

The Impact of Information Availability on Destination Choice

F. Combes, A. De Palma
Consider a population of agents who choose one among a set of destinations located along a rectilinear road. Each of these destinations has a certain utility, modeled by a random variable. We compare a situation where the agents have to explore the destinations to observe the value of their utilities, to a situation where they know these values beforehand. We show that more information yields a higher welfare to the agents, and also, perhaps counter-intuitively, higher distance traveled.

Location, Proximity, and M&A Transactions

YE CAI, XUAN TIAN, HAN XIA
In this paper, we examine how the geographic location of firms affects acquisition decisions and value creation for acquirers in takeover transactions. Our paper suggests that a firm's location plays an important role in facilitating the dissemination of soft information and enhancing information-based synergies.

Revealing Incentives for Compatibility Provision in Vertically Differentiated Network Industries

Filomena Garcia, Cecilia Vergari
We determine the incentives for compatibility provision of firms that produce network goods with different intrinsic qualities when firms do not have veto power over compatibility. When network effects are strong, there are multiple equilibria in pricing and consumer decisions. We show that in some equilibria, it is the high-quality firm that invests in compatibility, whereas in others, the low-quality firm triggers compatibility. The socially optimal compatibility degree is zero, except under very strong network effects, where one of the equilibria has all consumers buying the low-quality good. In this case, a partial degree of compatibility is optimal.

Do Business Groups Change With Market Development?

Borja Larrain, Francisco Urzúa I.
Khanna and Yafeh hypothesize that business groups should be more common in economies with less developed markets and institutions. We test the time-series version of this hypothesis by looking at changes in Chilean groups over 20 years (1990–2009).