EXPRESS: Learning to Set Prices

The authors empirically examine how firms learn to set prices in a new market. The 2012 privatization of off-premise liquor sales in Washington State created a unique opportunity to observe retailers learn to set prices from the point at which their learning process began. Tracking this market as it evolved through time, the authors find that firms indeed learn to set more profitable prices, that these prices increasingly reflect demand fundamentals, and they ultimately converge to levels consistent with (static) profit maximization. The paper further demonstrates that initial pricing mistakes are largest for products whose demand conditions differ the most from those of previously privatized markets, that retailers with previous experience in the category are initially better-informed, and that learning is faster for products with more precise sales information. These findings indicate that firm behavior converges to rational models of firm conduct, but also reveal that such convergence takes time to unfold and play out differently for different firms. These patterns suggest important roles for both firm learning and heterogeneous firm capabilities.

Dominant Firm Unilateral Conduct: Monopolization and Abuse of Dominance

A firm acting alone—that is, unilaterally—can also harm competition. If it has sufficient influence on a market, it can exclude rivals or limit their capacity to compete. Competition law regimes typically contain provisions prohibiting such conduct. Most use the concept of abuse of dominance to identify and combat it, but a few, including the US, use the term “monopolization” for this purpose. This component of competition law is often controversial and politically sensitive, and globalization increases this tension. This chapter identifies the issues in applying competition law to single firm conduct and reveals how regimes decide whether to pursue it. A single firm can harm competition only if it has sufficient power to influence a particular market, so the chapter looks at how regimes assess this power, how they define the relevant market, and which kinds of conduct constitute a competition law violation. Although most competition laws target this type of conduct, variations in actual treatment are great. The Guide outlines the global patterns and the factors that lead to them.

Understanding New Trend in Business: Inter-Firm Cooperative Alliance Between Competing Organizations

Traditional economics-based framework suggests that firm cooperates with competitors to increase its market power or efficiency in transaction for the maximization of its self-interest profit. However, nowadays growing numbers of firm engage in alliance with competitors for non-economic purpose. This paper seeks to understand the nature of inter-firm alliance between direct competitors by discussing several critical issues regarding it. The issues are chosen by the criterion that useful perspectives from either organization theory or strategic management can be applied to this phenomenon so that scholars are encouraged and can be easier to do a research on this topic in the future. In this regard, I seek to answer the question of why firm cooperates with competitor by comparatively adopting four novel approaches, which, combined together, provide an excellent complementary view to the traditional economics-based approach. Also, by understanding the distinctive feature of decision-making process when firm conduct a collaboration with competitor this study provides a practical insight on how firm structures, manages, and makes a decision when it cooperates with competitors. Overall, several conceptual ideas suggested by this paper can be an interesting starting point for the future empirical research.

8. The economics of agreements, collusion, and parallel conduct

A group of firms can act together and damage the market and produce unwelcome welfare effects. This is known as a ‘cartel’ or ‘cartelization’. However, multi-firm conduct is often a more difficult phenomenon to analyse and identify than single firm or monopoly behaviour. This chapter discusses horizontal restraints, vertical agreements, and vertical restraints. Horizontal agreements may raise concerns that competition is being harmed, but collusion may be difficult to detect. The problems of policing horizontal conduct may be exacerbated in oligopoly markets, where there are few competitors which frequently mimic each other’s conduct without necessarily coordinating. Cartel arrangements may be difficult to put in place, but may have long-term success. Vertical agreements are less likely to raise competitive concern, unless they are linked to the exercise of market power, or contribute to the exclusion of competitors from a market.

18. The economics of merger control

This chapter deals with the key arguments that underpin the policy goals behind merger control which, in essence, relate to two factors: first, the creation or extension of monopoly power, including the raising of barriers to entry for potential competitors; and second, increasing the scope for collusion in a market which, post-merger, will be more oligopolistic and less competitive than was the market premerger. The first of these two factors is related to the control of dominant firm conduct; dominance itself is not condemned in either the EU or the UK. Nevertheless, in merger control there is a situation where the attainment or extension of dominance may be condemned or prevented.

Rewarding the good and penalizing the bad? Consumers’ reaction to food retailers’ conduct

Purpose The purpose of this paper is to obtain insights into Vietnamese consumers’ knowledge and relevance of as well as their reaction to modern food retailers (MFRs) responsible and irresponsible conduct. Design/methodology/approach Data were obtained from an online survey applying content analysis, uni- and multivariate tests and multivariate regression models. Findings In total, 60 percent of respondents are not aware of (ir)responsible conduct of MFR. Most of those aware of such behavior indicate that this has induced a change in their shopping behavior. This holds to a similar extent for those not aware but envisaging the (ir)responsible conduct of MFRs. The findings point to a negativity bias in that consumers’ reaction is more sensitive regarding irresponsible than responsible firm behavior. This bias is higher for consumers already knowledgeable about the (ir)responsible behavior of MFRs. The likelihood that consumers punish irresponsible conduct is influenced by the importance they attach to “food quality and safety” while those having high concerns for environmental, social and ethical’ issues are more likely to reward responsible firm actions. Research limitations/implications The negativity bias which implies that consumers react more sensitive regarding irresponsible than responsible firm behavior is likely underestimated in hypothetical studies. Practical implications Customer loyalty is at stake for MFRs behaving irresponsible while it can be strengthened by responsible firm conduct. Originality/value This research is the first to highlight the importance consumers in Vietnam attach to responsible firm conduct. It also points to a lack of awareness of such behavior.

Analysis of Industrial Structure, Firm Conduct and Performance – A Case Study of the Textile Industry

With the analysis of the industrial economic theory structure – conduct – performance model, the study investigates the existence of significant relationship among market structure, conduct and performance. Twelve Taiwan companies are studied during the study period from 2006 to 2012 which are analysed with fixed effect and random effect of panel data and ordinary least squares estimation. The empirical result backs the statement by “Structuralism” that market structure (market share, entry barrier and capital intensity) directly affects firm conduct (R&D intensity) and performance (ROA).