Degree Of Cost Asymmetry Research Articles

The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments

PurposeThis study explores the relationship between debt intensity and cost stickiness at the local government level, a setting characterized by the existence of debt constraints and political influence.Design/methodology/approachBuilding on a theoretical framework informed by the concepts of coercive isomorphism and accountability, the present study focuses on Greek municipalities and applies Anderson et al.’s (2003) extended methodology, as reviewed by Banker and Byzalov (2014), in a sample of 1,366 municipality year observations for the period 2011–2020.FindingsThe results indicate that the degree of cost asymmetry is negatively associated with debt intensity. Periods before elections present the same picture. This negative relationship becomes insignificant in the case of large municipalities, which probably require more resources to support their operations and incur higher adjustment costs for reducing resources. These findings are robust to use alternative types of expenses associated with cost stickiness and a battery of control variables.Originality/valueLittle is known about the impact of debt level and financial constraints on cost behavior in the public sector context. This study takes a fresh look at the relationship between municipal debt structure and cost stickiness, adding to the understanding of cost behavior considering the debt level, financial constraints, resource-adjustment costs and the underlying managerial behavior.

Macroeconomic uncertainty and cost stickiness

Cost management is the core issue related to the development of enterprises, and studying enterprise cost behavior will contribute to optimizing enterprise decisions. However, an enterprise is not an independent organization. Instead, it exists and is affected by the macroeconomic environment. So it is conducive for company to apply macroenvironment information to cost management behaviors. This paper studies the cost stickiness based on the perspective of macroeconomic uncertainty, and takes “adjustment cost” and “agency problems” as the internal logic to integrate into the existing interpretation framework of cost stickiness. We analyze SG&A costs for Chinese listed firms over the period 2013 – 2019 after controlling for known economic determinants. The results show a positive relation between the macroeconomic uncertainty and the degree of cost asymmetry. In particular, the macroeconomic uncertainty makes the cost stickiness of human resource cost weaken.

A contextual analysis of the impact of managerial expectations on asymmetric cost behavior

We examine the effect of managerial expectations on asymmetric cost behavior in the context of resource adjustment costs and unused resource constraints. Our results show that the incremental impact of managerial expectations on cost asymmetry is the strongest when adjustment costs and unused resources are high. Conversely, when both are low, expectations have no impact on the degree of cost asymmetry. Furthermore, when the degree of unused resources is high, managerial pessimism is associated with anti-sticky cost behavior but managerial optimism reverses this relation and results in cost stickiness. Finally, we find the strongest cost stickiness under the following: a low degree of unused resources, a high magnitude of adjustment costs, and optimistic managerial expectations; by contrast, the strongest cost anti-stickiness occurs when all three drivers operate in the opposite direction. Our study suggests that additional economic determinants should be considered when assessing the impact of managerial expectations on cost behavior.

‘To sell or not to sell’: Licensing versus selling by an outside innovator

We study various modes of technology transfer of an outside innovator in a spatial framework when the potential licensees are asymmetric. In addition to different licensing options, we also look into the option of selling the property rights of innovation and find the optimal mode of technology transfer. For licensing we find the optimal policy is to offer pure royalty contracts to both licensee firms when cost differentials between the firms are relatively small compared to the transportation cost, otherwise offer a fixed fee licensing contract to the efficient firm only. Interestingly, we show the innovator is always better-off selling the innovation to any one of the firms who further licenses it to the rival firm. The result holds irrespective of the size of the innovation (drastic or non-drastic) and the degree of cost asymmetry between the licensees. Social welfare is greater under selling than licensing.

Imperfect collusion in an asymmetric duopoly

espanolUsando el coeficiente de cooperacion, analizamos el efecto de las asimetrias en costes en los acuerdos colusorios cuando las empresas son capaces de coordinarse en niveles de produccion distintos de aquel que maximiza el beneficio conjunto. En este contexto, primero investigamos en que medida son factibles los acuerdos colusorios. En segundo lugar, nos centramos en la sostenibilidad de la colusion en un juego repetido infinitos periodos. Se demuestra que, independientemente del grado de asimetria en costes, al menos cierto nivel de colusion siempre es sostenible. Finalmente, tambien se obtiene el grado de colusion endogeno para demostrar que la cooperacion tiene un limite superior determinado por la empresa mas ineficiente. EnglishUsing the coefficient of cooperation, we analyse the effect of cost asymmetries on collusive agreements when firms are able to coordinate on distinct output levels than the unrestricted joint profit maximization outcome. In this context, we first investigate the extent to which collusive agreements are feasible. Secondly, we focus on collusion sustainability in an infinitely repeated game. We show that, regardless of the degree of cost asymmetry, at least some collusion is always sustainable. Finally, the degree of collusion is also endogeneised to show that cooperation has an upper bound determined by the most inefficient firm.

The Recognition of the Asymmetry: Sticky Costs and Cognitive Biases

This paper investigates whether individuals are accurate in recognizing and predicting cost stickiness under different presentation formats. In particular, I conduct an experiment manipulating the degree of cost asymmetry (nonsticky, semisticky, sticky), which is the cost behavior when revenues increase or decrease, and the presentation of financial information (monetary amounts vs. percentages). Contrary to the expectation, participants are more likely to recognize and predict accurately sticky costs rather than nonsticky costs (i.e. cost symmetry). They mentally apply a sticky model also to predict changes of nonsticky costs. Moreover, the presentation of variations expressed as percentages allows more accurate forecasts. Further, a significant interaction effect between the two manipulations is found. The cognitive ability and the cognitive style of the participants are measured in order to disentangle possible confounding effects. The findings of this study suggest that the mental models of the individuals and their cognitive biases influence cost forecasts and adjustments decisions.

A Note on Managerial Delegation with Asymmetric and Convex Costs

In this note, we investigate if the standard result by the managerial delegation literature, i.e., the sub‐game perfect Nash equilibrium is not Pareto‐optimal from the firms' viewpoint, still applies when asymmetric and convex costs are introduced into the analysis. In such a framework, the managerial delegation choice still represents a sub‐game Nash perfect equilibrium, but the more efficient firm may obtain higher profits provided that the degree of cost asymmetry between firms is sufficiently large. Copyright © 2015 John Wiley & Sons, Ltd.

Management Expectations and Asymmetric Cost Behavior

The documentation of asymmetric cost behavior in response to changes in demand has attracted much scholarly attention over the past decade. Most studies propose that this cost asymmetry is due to the influence of management expectations on their deliberate resource allocation decisions. This study examines empirically the effect of management expectations on cost asymmetry, and, principally, the tension between these expectation-based decisions and constrains imposed on these decisions by two economic drivers of the cost asymmetry — the availability of initial slack resources and adjustment costs. Using the tone in the forward-looking statements (FLS) of a sample of 10-K reports as a measure of management expectations, we document a positive and significant relation between the favorableness of management FLS tone and the degree of cost stickiness. Furthermore, we demonstrate that managers’ expectation-driven decisions can reverse the previously documented anti-sticky cost behavior imposed by high slack resources. Notably, we find the impact of management expectations on the degree of cost asymmetry is strongest when both the initial amount of slack resources and the magnitude of the adjustment costs are high. Conversely, when both the magnitude of the adjustment costs and the initial amount of slack resource are low, management expectations have no impact on the degree of cost asymmetry. Our combined evidence supports the theoretical explanation in the literature that management expectations influence their resource allocation decisions, and indicates that other economic determinants may need to be considered when assessing the impact of these decisions on a firm’s cost structure.

WAGE BARGAINING AND MERGER INCENTIVES WITH ASYMMETRIC COSTS

ABSTRACTThis paper examines how wage bargaining within each firm influences the relationship between an equilibrium ownership structure and the most preferred ownership structure from the viewpoint of social welfare, in a unionized oligopoly of asymmetric firms with respect to productivity of capital. We consider the merger incentive of each firm’s owner when the wage level is determined through bargaining between the firm’s owner and union. We derive a condition for both the degree of cost asymmetry among existing firms and the relative bargaining power of each firm’s owner to her/his union such that each ownership structure can be observed in equilibrium. We also show that although the two types of ownership structures with the merger involving the least efficient firm can be equilibria and socially optimal, these structures are observed only when both the degree of cost asymmetry and the relative bargaining power of each firm’s owner are moderate. Finally, we analyse the relationship among the cooperative game approach employed in this paper and two non‐cooperative merger formation approaches, and examine the robustness of the results obtained in this paper against the change in the assumption regarding each firm’s cost function.

Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry

Theory, experimental studies, as well as antitrust guidelines suggest that symmetry among firms is conducive to more collusive outcomes. We test this perception in a series of experimental repeated Bertrand duopolies where firms have convex costs. We implement symmetric as well as asymmetric markets that vary in their degree of cost asymmetry among firms. We find no evidence of symmetric markets being more prone to collusion than asymmetric markets. If anything, asymmetry helps firms coordinate on higher prices and achieve higher profits.

Stability and Success of Regional Fisheries Management Organizations

According to international law, straddling fish stocks should be managed cooperatively through regional fisheries management organizations (RFMOs). This paper analyzes the stability and success of these organizations through a game in partition function form based on the classical Gordon-Schaefer bioeconomic model. Results show that the larger the number of fishing states that compete for the fish stock the higher are the relative gains from full cooperation, but the lower is the likelihood of large RFMOs being stable. It is also shown that new entrants increase the incentives of RFMO members to leave and decrease the incentives of non-members to join it. Moreover, the success of coalition formation is positively correlated with the degree of cost asymmetry among fishing states and negatively with the overall level of efficiency.

Technology Transfer, Merger and Joint Venture : A Comparative Welfare Analysis*

We consider a framework where initially a foreign firm and a few domestic firms are competing in a homogenous product local market. The foreign firm has a lower marginal cost of production relative to the domestic firms. We study then possibility of a bilateral agreement between the foreign firm and a local firm on each of technology transfer, merger and joint venture. Given the optimal behavior of the foreign firm, the paper also examines welfare implica - tions of each such collaborative deal. Depending on cost asymmetry it is always profitable for the foreign firm to go for the one or the other deal. But the local government generally encourages new firm joint venture formation. The degree of cost asymmetry and the number of firms in the market play an impor - tant role in this analysis.

Competition, entry and the social returns to infrastructure in transition economies

This paper presents a simple model for analysing the contribution of investments in physical and institutional infrastructure to the transition process. In addition to the direct cost savings, infrastructure investment generates important indirect effects, or transition impacts. The model shows that, by reducing transaction costs, infrastructure intensifies product market competition. This leads to more effective weeding out of the existing high‐cost firms in the market. In this model, infrastructure also increases the incentives for low‐cost firms to restructure which generates additional efficiency gains, but exacerbates the existing cost asymmetry in the economy. Finally, infrastructure investment enhances the incentives for relatively low‐cost firms to enter the market, and thus improves the efficiency of the entry process. The importance of these transition impacts of infrastructure is dependent upon features of the economy, such as the degree of cost asymmetry among firms, the proportion of high‐cost firms, the cost of restructuring and entry costs for new firms.JEL classification: L1, O1, P2.

The starfish effect: Can market entry by one firm encourage further entry by others?

This paper examines the impact of entry decisions into oligopolistic markets upon the entry and exit decisions of rival producers. When learning economies are important, entry by one firm may paradoxically make entry more attractive to others by weakening the ability of a dominant incumbent to produce at low cost. The likelihood of this outcome depends upon the extent to which variable costs of production decline as output increases, and is enhanced by scope economies in the presence of multi-market contact, as well as by the degree of cost asymmetry between firms. It is suggested that entry-inducing entry may actually have occurred in part of the market for large civilian passenger aircraft. Whether or not this is so, a more general conclusion is robust: in industries where scale and scope effects are large, the impact of entry is not just upon competition but on costs, and these effects work in opposite directions to influence the entry decisions of other firms.