COLLUSION, EFFICIENCY AND PRICING BEHAVIOR: EVIDENCE FROM THE BANKING INDUSTRY

This paper examines the validity of competing hypotheses used to explain the observed positive relationship between concentration and profits. Using price proxies from the banking industry, we find that leading (secondary) firms in a market act as price-setters (price-takers). This is true regardless of market concentration. We interpret this as evidence of the superior efficiency of leading firms and conclude that the higher profits earned by these firms is due to their superior efficiency and not collusive behavior.     

Unionism and prices in the food retailing industry

It is frequently asserted that labor organizations have dominated the collective bargaining process in some industries, extracting higher wages than in the absence of unionism. One reason may be that oligopoly exists in the relevant product markets, so that firms obtain greater-than-normal returns regardless of the outcome of wage negotiation. Also, work stoppages may negatively affect market share, causing firms to be reluctant to resist labor demands. Under these circumstances, union share and product market concentration would be expected to be positively related to product price. This proposition is tested explicitly for the food retailing industry and confirmed. Opinions presented are those of the author and do not necessarily reflect views of the Economics and Statistics service or the U.S. Department of Agriculture. The helpful comments of Harry Harp and Gerald Grinnell are gratefully acknowledged.     

Diversification of Korean housebuilding firms: The pattern and motives between 1980 and 1995

The Korean housebuilding industry made rapid growth during the 1980s and 1990s and the industry has been restructured. One of its outstanding characteristics has been the diversification of housebuilding firms. The objective of this paper is to examine the impact of government regulations on the restructuring of the Korean housebuilding industry. The extent and pattern of diversification were examined via an analysis of the period 1980–1995, and the motives for diversification were investigated using interviews and empirical modelling. The results show that Korean housebuilding firms were diversified into both related and unrelated businesses during the rapid growth period. The conclusion is that building firms tended to diversify into other businesses in order to use resources more efficiently. In particular they extended their activities into counter-cyclical businesses in order to compensate for business loss due to tight government regulation. The diversification is seen as a survival strategy under a regulated environment as well as a long-term growth strategy.     

Union influence on plant size

Much research has focused on the direct effect of unions on production efficiency given set technology and plant scale. However, another path through which unions may influence productivity has received virtually no attention: the indirect productivity effect that unions may exert on the firm’s choice of plant size. We present a model in which firms explicitly consider the positive correlation between the probability of being unionized and plant scale in choosing plant scale and show that unions may prevent firms from fully exploiting economies of scale by their threat of organizing. Although it may be difficult to directly estimate this effect, there is ample casual empirical support that union status and plant scale are positively related.     

Economics of the firm and economic growth: a hybrid theoretical framework of analysis

Abstract

The main goal of this study is to achieve a critical discussion around the conceptualization of the firm and its role in the dynamic process of economic growth. By reviewing the theoretical matrix of the economics of the firm we go beyond the mainstream economics of the firm proposing a hybrid approach combining evolutionary and population ecology, which is likely to constitute a fruitful path for the conceptualization of the firm in the process of economic growth. Specifically, the analysis confronts the distinct theoretical perspectives around some imperative and controversial issues such as the nature of knowledge and learning and the cognitive capacities of economic agents within the firm. We argue that the economic understanding of growth and development of human societies will strongly benefit from a conceptualization of the firm capable of capturing the spirit of the Knightian firm. Overcoming the shortcomings of the mainstream growth models, which conceive firms as a black box, the proposed hybrid approach recalls the true nature of the firm as an organization. Issues related to the organizational arrangements that sustain the feasibility of productive activities and to the incentive contracts are also taken into account. Although acknowledging some recent important contributions within mainstream economic growth theory to adopt more realistic concepts of the firm, we believe that evolutionary and organizational population perspectives include crucial pointers in developing further research aimed at the construction of economic growth models based on a micro-economic perspective that is closer to the reality of firms.     

FIRM AND INDUSTRY RESPONSE TO CHANGED MARKET CONDITIONS: AN EVOLUTIONARY APPROACH

This paper describes an evolutionary theory of the response of firms in a competitive industry to changed market conditions. Search and selection replace the more orthodox assumptions of profit maximizing and zero profit long run equilibrium. The particular assumptions needed to assure that the direction of response of such an evolutionary system is the same as that predicted by more orthodox theory are explored. While an evolutionary theory and a more orthodox one yield many of the same positive qualitative predictions, they differ sharply in a number of other respects, and these are considered in detail.     

How unions affect shareholder wealth in firms announcing layoffs

We investigate whether investor anticipation of future performance differs between union and nonunion firms following corporate layoff announcements. Using event-study methodology and multivariate regression analysis, we find that the stock market reaction to layoff announcements is negatively related to nonunion firms and positively related to union firms.     

ADVERTISING, CONCENTRATION AND PROFITABILITY IN MANUFACTURING

This paper predicts an inverted-LI relationship between concentration and advertising only for oligopolistic industries facing relatively less elastic demand curves. It rejects the inverted-LI theory based on the hypothesis that the large firms collude and lends empirical support to the idea that causation runs from Concentration to advertising intensity. By confirming that the effect of advertising on profitability is significant and greater for industries producing homogeneous goods than for those producing heterogeneous goods, this study fails to support the barriers-to-entry hypothesis.     

The Effect of Absentee Ownership on Local Employment Change

Abstract

To determine whether absentee-owned firms destabilize local economies, we examine the relationship between absentee ownership of manufacturing companies and employment change in manufacturing for 109 Pennsylvania towns. This issue arises because some earlier studies find that corporate connections through absentee-owned firms are positively related to local employment growth, whereas other work claims that locally owned operations are more stable. We attempt to reconcile these findings by arguing that absentee ownership is destabilizing only in the case of non-conglomerate firms. Our results show that absentee ownership in fact increases the closure rate of firms, thereby negatively affecting manufacturing employment change. Yet, this relationship differs by the parent company's organizational structure. Employment in branches of non-conglomerate firms is more detrimental than employment in branches of conglomerates — an important qualification of the argument that the “conglomeratization” of advanced industrial societies negatively affects communities.     

Temporary Help Firms as Entrepreneurial Actors

Competing explanations of growth in the temporary help supply (THS) industry stress its role in meeting the needs and desires of workers vs. those of employers. Until now, less attention has been paid the growth agenda of the THS industry itself. Yet evidence from a study of THS firms in Wisconsin suggests that their entrepreneurial efforts may be an important, overlooked factor driving the industry's expansion. This paper examines the growth and geographic dispersal of Wisconsin's THS firms through a theoretical framework of entrepreneurial action. Data from in-depth interviews with their owners and managers reveal strenuous efforts to create new markets for THS services. THS firms' highly proactive stance is reflected in their decisions about where to locate, efforts to become part of local social networks, and innovative approaches to product development and marketing. Previous studies have implied that THS firms opportunistically and reactively respond to changes in labor supply or demand factors. This study finds THS firms actively promoting their own growth, intervening in labor markets to forge a role for themselves as employment intermediaries and gatekeepers to permanent jobs.     

Union membership,market structure,and the innovation output of large and small firms

The determinants of the extent of union membership, industry concentration, and the innovation output of large firms and small firms are examined in a simultaneous-equations model. Data for 246 U.S. manufacturing industries are used to determine: (1) that there are significant interdependencies among these endogenous variables; (2) that contrary to recent findings, unionization is significantly lower in industries with high concentration and high innovation output; and (3) that although high unionization modestly reduces small-firm innovation output (as compared with large-firm innovation output), there is not a large difference in the effects of small-firm and large-firm innovation output on the extent of union membership across industries. I am grateful to John W. Ballantine for his comments on this study.     

Union rents and market structure revisited

Several recent studies give conflicting evidence on whether market power associated with industry concentration is an important source of union rents. Using a 1977 sample of 327 four-digit manufacturing industries, we re-examine the issue with a regression analysis that allows for differential union effects on price-cost margins across three levels of concentration. Large and small firm as well as industry average price-cost margins are analyzed. The results reaffirm those of Hirsch and Connolly (1987), who conclude that the effect of unions on profits is independent of market structure, and thus market power is not an important source of union rents. We find that unionization: (1) reduces industry profits in all three concentration groups with statistically insignificant differential effects, and (2) has a greater negative effect on the profits of large firms than it does on the profits of small firms, regardless of the concentration category. We benefited from the comments of an anonymous referee. Any remaining errors are our own.     

Limits to expansion: transnational corporations and territorial embeddedness in the Japanese temporary staffing market

Recent changes to employment legislation have combined with shifting macro‐economic conditions to drive dramatic growth in Japan's temporary staffing industry. Leading transnational staffing agencies have sought to capitalize on this growth as part of their wider globalization strategies but have faced substantial challenges both in entering the market and in their subsequent attempts at expansion. In this article, we explore the ways in which the particularities of the Japanese host market regulatory and institutional environment combine with the inherent characteristics of the temporary staffing business model to challenge the expansionary strategies of these firms. We argue that while transnational firms have sought to adapt their business practices and strategies to the Japanese case, the attributes of the Japanese staffing market mean they have been unable to make significant inroads into the dominant market shares held by their domestic rivals.     

Fair Trade Flowers: Global Certification,Environmental Sustainability,and Labor Standards

This article analyzes the organization of the fair trade flower industry, integration of Ecuadorian enterprises into these networks, and power of certification to address key environmental and social concerns on participating estates. Pursuing a social regulatory approach, I locate fair trade within the field of new institutions that establish and enforce production criteria in international markets. My research finds that while firm owners and managers support fair trade's environmental and social goals, these commitments are delimited by mainstream market expectations related to production efficiency and product quality. In environmental arenas, certification helps ensure that conditions exceed legal mandates and industry norms. In social arenas, certification helps ensure that labor standards exceed legal and industry expectations and funds important programs benefiting workers and their families. Where unions are absent, fair trade's greatest impact may be in the establishment of workers' committees that can build collective capacity. Although these new labor organizations face numerous challenges, they may strengthen the social regulation of global flower networks, making firms accountable to their workers as well as to nongovernmental organizations, retailers, and consumers.     

Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up

Most firms achieve perfective progress, incrementally improving commodities or productivity. But technological progress is concentrated in a few firms achieving metamorphic progress: forming or transforming industries with technological breakthroughs (e.g., biotechnology, lasers, semiconductors, nanotechnology). Unless congruent with incumbents' science and technology base, metamorphic progress promotes entry. Scientific breakthroughs embodied in discovering scientists, protected by natural excludability and transferred by learning-by-doing-with at the bench generally drive metamorphic progress. Embodied knowledge is rivalrous and leads to entry and industry dominance by star scientist–linked firms. Incorporating this scientific entrepreneurial process is essential to improving—if not transforming—endogenous growth models.     

Formalization of grievance procedures: A multi-firm and industry study

This study examines how two aspects of formalization of grievance procedures affect grievance procedure effectiveness: written versus oral presentation of grievance and the level of union and management authorized to resolve grievances at the first step. Several demographic variables were controlled for: size of bargaining unit, percentage of organization represented, number of grievances filed, and industry. A sample of 46 firms, representing a broad cross-section of unionized companies in the private sector, was obtained with the help of the American Arbitration Association. Results indicate that more formal grievance procedures (e.g., written presentation) are positively related to resolution rates at the first step. The number of grievances field and the size of the bargaining unit were positively related to total resolution rates prior to arbitration. We thank the American Arbitration Association for making this study possible.     

IMPERFECT COMPETITION and BUSINESS CYCLES: AN EMPIRICAL INVESTIGATION

Does imperfect competition increase the magnitude of business cycles? If so, the variability of an industry's employment and output should be positively related to the market power of firms in that industry. This paper demonstrates that the opposite is true: U.S. manufacturing industries with high price-cost margins display less employment variability than do low-markup industries. These high-markup industries display less price variability as well. Highly concentrated industries, however, do display more employment variability. To some degree, markups may reflect labor hoarding rather than market power; this may account for part, but not all, of the negative correlation between markups and variability.     

CORPORATE PRODUCTIVITY GROWTH: CHAMPIONS, LEADERS, AND LAGGARDS

This paper examines the relative productivity growth performance of a sample of large UK firms between 1986 and 1995. We find that superior productivity growth, however measured, is not persistent—firms with high productivity growth rates relative to (say) the average in 1 yr are as likely as not to display below-average performance in the following year. Studying the determinants of the length of time for which firms outperform their peers, we find that innovative firms carrying low debt who are relatively free from financial distress are likely to display whatever persistently superior performance we observe in the data. ( JEL D24, O33, O4)     

Contested milieux: Small firms,unionization, and the provision of protective structures

Three trends in the workplace point to the importance of considering work relations as well as governance structures for the development of protective benefits such as pensions. The increasing concentration of employment growth in smaller firms, the general decline of unionization, and the changing composition of the work force constitute the new exigencies of worker-employer contracts. The 1983 Current Population Survey Pension Supplement is used in conjunction with certification data from the National Labor Relations Board to examine the interaction between firm size and the influence, as opposed to the prevalence, of unionization in the provision of pensions. Unionization is found to be more influential in the provision of pensions for workers in small firms despite the established prevalence of unionization in larger firms. The implications of these trends for labor market theory are discussed.This is a revised version of papers that were presented at the annual meetings of the Gerontological Society of America, November 1988, and the American Sociological Association, August 1989.     

Impact of government and industrial agglomeration on industrial land prices: A Taiwanese case study

Government intervention in industrial development is important in promoting national economic development in numerous Asian countries. This study aims to examine the influence of government and industrial agglomeration on industrial land prices by constructing hedonic pricing functions. Based on model testing, this study indicates that variables related to general attributes, locational attributes, industrial agglomeration and government determine land prices. Moreover, industrial agglomeration is positively related to land prices; that is, industrial parks with a stronger agglomeration economy have higher land value. However, the role of government is negatively related to land prices, indicating that government intervention has no influence in increasing land prices and probably results from the inappropriate location of industrial parks and dissatisfaction of those parks' management services. To increase the development efficiency and industry competitiveness, this study proposes that government should identify and improve the weaknesses of industrial parks and promote the establishment of industrial clustering and information transfer among firms.