Issue 1

Volume 31 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Spring 2022

Competitive survival in a devastated industry: Evidence from hotels during COVID-19

Michael D. Noel
Using the lodging industry as the application, this article shows that businesses' failure risk in a pandemic depends on a business' native ability to adapt to changing safety needs, in particular its ability to provide a socially distanced environment. Effects are identified by comparing prepandemic expectations of outcomes to updated within-pandemic expectations of outcomes, all while holding the place and the time of consumption fixed.

Streaming platform and strategic recommendation bias

Marc Bourreau and Germain Gaudin
We consider a platform that carries content from two upstream content providers and presents personalized recommendations to participating customers. We establish that if consumers are sufficiently insensitive to bias, the recommendation system allows the platform to credibly threaten upstream providers to steer consumers away from their content, which reduces their market power. We also investigate the effects of vertical integration by the platform and show the robustness of our results to nonlinear (personalized) streaming services.

Attention to online sales: The role of brand image concerns

Markus Dertwinkel-Kalt and Mats Köster
We provide a novel intuition for why manufacturers restrict their retailers' ability to resell brand products online. Our approach builds on models of salience-driven attention according to which price disparities across distribution channels guide a consumer's attention toward prices and lower her appreciation for quality.

Uniform and targeted informative advertising with asymmetric customer loyalty

Michael Arnold, Eric Schmidbauer, and Lan Zhang
We model optimal firm pricing and advertising intensity strategies under both uniform and targeted advertising regimes in a duopoly market in which firms have asymmetric loyal market shares and must engage in costly informative advertising to attract customers. Our main results explore the strategic trade-off between advertising intensity and price competition and demonstrate how optimal firm pricing, advertising strategies, and equilibrium outcomes differ with the relative size of a firm's loyal market and with the advertising regime.

Competitive response to unbundled services: An empirical look at Spirit Airlines

Lei He, Myongjin Kim, and Qihong Liu
In 2010, Spirit Airlines announced that it would start charging passengers for carry-on baggage. Using a vector of route-level characteristics, we construct a matched group consisting of routes which best match those served by Spirit (the treated group). We then run a difference-in-difference estimation using the treated and matched group, and examine the impact of Spirit's baggage fee policy on its rivals' ticket prices.

Managing automation in teams

Mustafa Dogan and Pinar Yildirim
In this paper, we study a principal's decision to introduce automation into a production process governed by a team of employees. When introduced, automation displaces an employee with a machine. This displacement increases efficiency as the machine carries out the tasks of the employee at a lower cost, and reduces the scope of moral hazard as the machine does not make unobserved effort choices. We show that, despite the direct benefits, a principal may prefer not to adopt automation due to its indirect costs.

The effect of options to reward and punish on behavior in bargaining

Svetlana Pevnitskaya and Dmitry Ryvkin
We use a lab experiment to investigate how providing the responder with options to reward and/or punish the proposer postacceptance affects behavior in ultimatum bargaining. We find that the presence of costly reward and punishment options affects behavior of both bargaining parties, even if those instruments are rarely used.

Vertical integration and capacity investment in the electricity sector

David P. Brown and David E. M. Sappington
We examine the incentives for and the effects of vertical integration in the electricity sector. We find that vertical integration often reduces retail prices and increases industry capacity investment, consumer surplus, and total welfare. Unilateral vertical integration often is profitable, and so arises in equilibrium. However, ubiquitous vertical integration can reduce aggregate industry profit.

Firm-level investment under imperfect capital markets in Ukraine

Oleksandr Shcherbakov
This paper develops and estimates a model of firm-level fixed capital investment where firms may be unable to invest optimally due to liquidity and borrowing constraints. The estimation results suggest significant heterogeneity across industries, with 8%–29% of firms facing binding constraints on investment. These constraints are persistent over time. To make optimal investments, 24%–64% of firms must borrow to complement their own resources. The characteristics of constrained firms and the relationship between industry institutions and the level of financial constraints are discussed.