Issue 3

Volume 26 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Fall 2017

Targeted advertising, platform competition, and privacy

Henk Kox, Bas Straathof, and Gijsbert Zwart
We study competition for consumers between web sites that can show targeted advertisements. We find that more targeting increases competition and reduces the web sites' profits, but yet in equilibrium web sites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and web sites.

Bundling and joint marketing by rival firms

Thomas D. Jeitschko, Yeonjei Jung, and Jaesoo Kim
We study joint marketing by firms who price discriminate between consumers who patronize only one firm (single purchasers) and those who purchase from both (bundle purchasers). Firms either set the price of the bundle and then compete along side the bundle; or they determine a rebate that is applied to joint purchasers and then set prices.

The effects of major U.S. domestic airline code sharing and profit-sharing rule

Caixia Shen
This paper presents a structural model of code sharing among major U.S. domestic airlines and estimates a profit-sharing rule. The profit-sharing rule between partner firms in code sharing is estimated at 0.92, which suggests that the operating carrier acquires around 92% of profits from a round-trip, and the marketing carrier retains 8% as a commission fee. Meanwhile, the economies of code sharing reduces marginal cost, and firms are able to price at higher markups. This implies that demand increases and consumers have larger surplus if code sharing creates new products.

Rivalry information acquisition and disclosure

Xinyu Li and Ronald Peeters
In the recent past, there have been numerous scandals around poor product qualities in various industries. Although it can be easily rationalized why bad practices have not been reported by the inflictors themselves, it is more difficult to understand why the non-inflicting competitors did not report their rivals' acts. In this paper, we study these competitors' incentives to acquire and to disclose information on the quality of their rivals' products and question when we can leave the information disclosure process to the competitive pressure of markets and when there is a need for governmental intervention.

Motivate and select: Relational contracts with persistent types

Radoslawa Nikolowa
We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent.

From fixed to state-dependent duration in public-private partnerships

Daniel Danau and Annalisa Vinella
A government delegates a build-operate-transfer project to a private firm. In the contracting stage, the operating cost is unknown. The firm can increase the likelihood of facing a low cost, rather than a high cost, by exerting costly effort when building the infrastructure. Once the infrastructure is in place, the firm learns the true cost and begins to operate. Under limited commitment, either partner may renege on the contract at any moment thereafter. The novelty with respect to incentive theory is that the contractual length is stipulated in the contract in such a way that it depends on the cost realization.

Prevention incentives in long-term insurance contracts

Renaud Bourlès
Long-term insurance contracts are widespread, particularly in public health and the labor market. Such contracts typically involve monthly or annual premia which are related to the insured's risk profile. A given profile may change, based on observed outcomes which depend on the insured's prevention efforts. The aim of this paper is to analyze the latter relationship.

Do tournaments solve the adverse selection problem?

Theofanis Tsoulouhas
This paper provides a solution to a puzzle in the analysis of tournaments, that of why there is no agent discrimination or differential contracting in certain business practice settings. The analysis connotes that by using relative instead of absolute performance measures, firms with employees who are not substantially heterogeneous not only can alleviate the agency problem, but there is also no need to extract the agents' ex ante private information about their innate abilities via a screening menu.

Scientific research, firm heterogeneity, and foreign R&D locations of multinational firms

René Belderbos, Bart Leten, and Shinya Suzuki
We examine the influence of host countries’ scientific research strengths on global R&D location choices by multinational firms. In an analysis of 277 new R&D activities identified for 175 firms in 40 host countries and 30 technology fields, we find that the strength of relevant university research positively affects the likelihood that host countries attract foreign R&D.

The taxation of bonuses and its effect on executive compensation and risk taking—Evidence from the UK experience

Maximilian von Ehrlich and Doina Radulescu
This paper explores the effects of a bonus tax adopted in the UK in December 2009 on the compensation structure of executives and on risk-taking behavior in the financial sector. Using a comprehensive dataset on executive compensation, we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 40%, accompanied, however, by a simultaneous increases in other forms of pay leaving total compensation as well as risk levels unaffected.