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The interplay between firms' internal organization and market behaviour is a long standing issue in industrial economics. This book examines firms' objectives in the comparatively new perspective shaped by globalization. The positive and normative aspects of theoretical analysis are developed and richly complemented by empirical studies.



Existence and Uniqueness of Equilibrium in Labor-Managed Cournot Oligopoly

Ward (1958) has first shown perverse behavior of a competitive labor-managed firm whose objective is maximization of dividends per unit of labor in the firm. Hill and Waterson (1983) and Neary (1984) have analyzed labor-managed Cournot oligopoly without product differentiation. Okuguchi (1986) and Sertel (1991, 1993) have introduced product differentiation into labor-managed oligopoly. Okuguchi (1986) has proved that under a set of conditions, the price-adjusting Bertrand oligopoly equilibrium prices are not higher than the quantity-adjusting Cournot oligopoly equilibrium prices in labor-managed oligopoly with product differentiation. Okuguchi (1992) has also provided existence and stability proof of equilibrium in labor-managed quantity-adjusting Cournot oligopoly based on the contraction mapping theorem.
Koji Okuguchi, Ferenc Szidarovszky

Wage-Rise Contract and Cournot Competition with Labor-Managed Firms

The pioneering work on a theoretical model of a labor-managed firm was conducted by Ward (1958). Thereafter, many economists have studied the behaviors of labor-managed firms.1 Laffont and Moreaux (1985) examine the welfare properties of free entry Cournot equilibria in labor-managed economies and show that Cournot equilibria are efficient provided that the market is sufficiently large.2 Zhang (1993) and Haruna (1996) apply a Dixit (1980), Bulow et al. (1985) framework of entry deterrence to a labor-managed industry and show that a labor-managed incumbent firm has a greater incentive to hold excess capacity to deter entry than a corresponding profit-maximizing incumbent firm. Okuguchi (1993) examines two models of duopoly with product differentiation and with only labor-managed firms, in one of which two firms’ strategies are outputs (labor-managed Cournot duopoly) and prices become strategic variables in the other (labor-managed Bertrand duopoly). He shows that reaction functions are upward-sloping under general conditions in both labor-managed Bertrand and Cournot duopolies with product differentiation.3 Lambertini and Rossini (1998) analyze the behavior of labor-managed firms in a two-stage Cournot duopoly model with capital strategic interaction and show that labor-managed firms choose their capital commitments according to the level of interest rate, unlike what usually happens when only profit-maximizing firms operate in the market.
Kazuhiro Ohnishi

Price Setting is Popular among Firms: Will It Persist in Vertical Relationships with Market Uncertainty?

Most enterprises advertise their products communicating prices. Consumers are almost certain that they will be able to get the chosen good at the quoted price. This is common practice for both durable and nondurable goods markets. Price setting is popular among firms with the ability of adjusting supply without incurring substantial cost changes. Most production processes are organized along more than one vertical stage which may take place within the same firm (vertical integration) or in many separate enterprises (vertical disintegration or outsourcing). Since we do not know whether and to what extent the vertical organization affects marketing policies, it is worth investigating the relationship between vertical arrangements of production and price/quantity setting.
Gianpaolo Rossini

Contagious “Social Market Enterprises”: The Role of Fair Traders

In the traditional welfare economics approach problems of negative externalities generated by productive units, inequality of opportunities and underprovision of public goods where tackled by the action of “enlightened” domestic institutions. This framework adequately represents the reality of the pre-globalisation economic system. In such system checks and balances among corporations, domestic institutions and trade unions ensured the joint pursuit of economic development and social cohesion, thereby avoiding socially disruptive levels of inequality. The global integration of labour and product markets has significantly weakened the bargaining power of domestic institutions and trade unions. Corporations can now operate globally, with the risk of generating a “race to the bottom” among domestic fiscal authorities and workers’ representatives in order to attract job opportunities and direct investment.
Leonardo Becchetti, Giuseppina Gianfreda

Should One Sell Domestic Firms to Foreign Ones? A Tale of Delegation, Acquisition and Collusion

The issue of cartel stability has a long tradition. Several contributions have studied the factors and conditions affecting firms’ ability to implement collusive practices over time, investigating, for example, the consequences of heterogeneity among agents (see, inter alia, d’Aspremont et al., 1983; Donsimoni, 1985; Donsimoni et al., 1986), the role of imperfect information (Green and Porter, 1984; Rothschild, 1999) and of product differentiation (Ross, 1992; Deneckere, 1983), the effect of the imposition of import quotas (Rotemberg and Saloner, 1986) or the consequences that fringes of non-colluding firms have on cartel stability (Shaffer, 1995).
Davide Dragone

The Make-or-Buy Choice in a Mixed Oligopoly: A Theoretical Investigation

A wide debate is currently taking place concerning the convenience for firms of making or buying intermediate goods to be used as inputs in the production process. This issue is closely related to choice between vertical integration and dis-integration, or, equivalently, with the opportunity of outsourcing.
Roberto Cellini, Luca Lambertini

Entrepreneurs’ Behaviour and Performance: An Empirical Analysis on Italian Firms

The debate about the arguments of firms’ objective function is undoubtedly one of the oldest and unresolved of industrial economics.1 However, an even more puzzling and conceptually prior question concerns the very definition of entrepreneur and firm. Just to mention two of the most famous definitions we can remind Cantillon’s view of the entrepreneur as someone who assumes the risk and may legitimately appropriate any profits and the Schumpeterian view, which depicts the entrepreneur as the innovator who implements change within markets through the carrying out of new combinations.
Filippo Oropallo, Stefania Rossetti

Firms’ International Status and Heterogeneity in Performance: Evidence from Italy

Recent years have seen remarkable changes in the nature of trade and FDI flows. Globalization has stretched national boundaries and broadened firms’ perspective, making business an international issue. As a result, the international involvement of firms has increased over time, and multinational enterprises have become key players of this globalized modern scenario.
Lorenzo Casaburi, Valeria Gattai, G. Alfredo Minerva

Vertical Specialisation in Europe: Evidence from the Import Content of Exports

One of the consequences of global market integration is the international fragmentation of production, i.e. the localisation abroad of phases of production which previously took place in the home country.1 This process reflects the firms’ organisational choices aimed at reducing costs and increasing productivity on international markets (Antràs and Helpman, 2003; Helpman, 2006).
Emanuele Breda, Rita Cappariello, Roberta Zizza
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