Market Share Effect Research Articles

Asymmetric Effects of Sell-Side Analyst Optimism and Broker Market Share by Clientele

Using broker level data we demonstrate that relatively optimistic and relatively pessimistic analyst earnings forecasts both generate trade for their brokerage firms. This relationship is found to be asymmetric as the influence of relatively optimistic analyst forecasts on own broker market share is larger than the influence of relatively pessimistic analyst forecasts. Furthermore, upgrades and downgrades in recommendations also generate significantly higher broker market share, suggesting that sell-side institutions are rewarded for providing new information to the market. This study also provides evidence for the first time on how different broker clienteles react to earnings forecast and stock recommendations. Greater trade volume is found to be associated with optimistic earnings forecasts and stock recommendations are stronger for analysts affiliated with retail brokerage firms than those affiliated with institutional brokerage firms.

Hospital ownership and medical services: Market mix, spillover effects, and nonprofit objectives

Hospitals operate in markets with varied demographic, competitive, and ownership characteristics, yet research on ownership tends to examine hospitals in isolation. Here we examine three hospital ownership types – nonprofit, for-profit, and government – and their spillover effects. We estimate the effects of for-profit market share in two ways, on the provision of medical services and on operating margins at the three types of hospitals. We find that nonprofit hospitals’ medical service provision systematically varies by market mix. We find no significant effect of market mix on the operating margins of nonprofit hospitals, but find that for-profit hospitals have higher margins in markets with more for-profits. These results fit best with theories in which hospitals maximize their own output.

The strategic nature of advertising in segmented markets

We develop a simple model in which firm-specific advertising has cooperative and predatory effects. Our model is set in a static market where firms are naturally segmented into two distinct submarkets: several large firms located in the core, with small firms operating as a fringe. We test the net effect of opposing market size (cooperative) and market share (predatory) effects of both fringe and core firm advertising on the advertising decisions of large firms in several US consumer industries. Empirically, fringe firm advertising leads to an increase in advertising efforts by large firms, implying strategic complementarity. On the other hand, increased advertising by core firms in an industry decreases advertising expenditures of other core firms, indicating they are strategic substitutes. Our findings imply that equilibrium levels of advertising can be greater with asymmetric, rather than symmetric, strategic interactions.

Price‐increasing competition

In a discrete choice model of product differentiation, the symmetric duopoly price may be lower than, equal to, or higher than the single‐product monopoly price. Whereas the market share effect encourages a duopolist to charge less than the monopoly price because a duopolist serves fewer consumers, the price sensitivity effect motivates a higher price when more consumer choice steepens the firm's demand curve. The joint distribution of consumer values for the two conceivable products determines the relative strength of these effects. The analysis provides precise conditions for price‐increasing competition and reveals that it is unexceptional from a theoretical perspective.

What Do Nonprofit Hospitals Maximize? Medical Service Provision and Market Ownership Mix

Conflicting theories of the nonprofit firm have existed for several decades yet empirical research has not resolved these debates, partly because the theories are not easily testable but also because empirical research generally considers organizations in isolation rather than in markets. Here we examine three types of hospitals - nonprofit, for-profit, and government - and their spillover effects. We look at the effect of for-profit ownership share within markets in two ways, on the provision of medical services and on operating margins at the three types of hospitals. We find that nonprofit hospitals' medical service provision systematically varies by market mix. We find no significant effect of for-profit market share on the operating margins of nonprofit hospitals. These results fit best with theories in which hospitals maximize their own output.

The choice at the checkout: Quantifying demand across payment instruments

Dramatic changes have occurred in the U.S. payment system over the past two decades, most notably an explosion in electronic card-based payments. This shift has led to a series of policy debates driven in part by consumers' choice of payment instruments. Using a new nationally representative survey, we transform consumer responses to open-ended questions into product rankings and estimate a characteristics-based rank-order logit model in order to quantify consumer substitution among payment methods. Our estimates are then used to conduct supply-driven and demand-driven counterfactual experiments in order to estimate market share and cost effects. From a counterfactual experiment in which merchants stop accepting credit cards, we predict merchant costs to decline substantially. Because merchants accept credit cards nonetheless, we regard our finding as evidence either that the credit card networks hold market power, or that merchants experience unmeasured intangible benefits from credit card acceptance. We also predict that contactless debit will take market share from cash, checks, and credit, and that the age/cohort effect alone is unlikely to cause debit card use to increase substantially over a 10-year period.

What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix

Conflicting theories of the nonprofit firm have existed for several decades yet empirical research has not resolved these debates, partly because the theories are not easily testable but also because empirical research generally considers organizations in isolation rather than in markets. Here we examine three types of hospitals - nonprofit, for-profit, and government - and their spillover effects. We look at the effect of for-profit ownership share within markets in two ways, on the provision of medical services and on operating margins at the three types of hospitals. We find that nonprofit hospitals' medical service provision systematically varies by market mix. We find no significant effect of for-profit market share on the operating margins of nonprofit hospitals. These results fit best with theories in which hospitals maximize their own output.

Credence Goods, Efficient Labelling Policies, and Regulatory Enforcement

We analyse the optimality of information revelation of hidden attributes of “credence goods” via alternative labelling procedures. When consumers are heterogeneous in their willingness to pay for the hidden attribute, producers can either self-label their products, or have them certified by a third party. The government can impose self or third party labelling requirements on either the “green” or the “brown” producers. Our benchmark model develops a condition that links the optimal imposition of third party labelling to the relative market share of each type of the good under complete information. We extend our analysis to incorporate asymmetric information and cheating by the producers. When corrupt producers can affix spurious labels, the government needs to supplement the labelling policy with costly monitoring activities. We find that mandatory self-labelling schemes generally dominate mandatory third party labelling, unless the “market share effect” greatly exceeds the “incentive-to-cheat effect”.

Demand choices of high-tech industry for logistics service providers—an empirical case of an offshore science park in Taiwan

This study presents a methodological framework for analyzing factors that influence market share of third-party logistics (TPL) in high-tech industry. An emerging science park located in Southern Taiwan was chosen as the empirical case for the study. Confirmatory factor analysis was first conducted to examine the reliability and validity of the census data (136 outsourcing cases from 68 high-tech manufacturers). This was followed by calibrations of a binary logit model that examines the demand choices of the manufacturers in selecting two types of TPLs, express and forwarder. Results indicate that the strongest determinant of industrial demand choices is the service performance of the TPL, followed by service cost, and added value. In improving these service factors, the market share effect of express-based TPL is found to be slightly greater than that of forwarder-based. The analysis indicates that high-tech manufacturers with larger annual sales or smaller shipments favor express services over forwarding services.

Reexamining the effect of the most-favored-nation provision in input prices on R and D incentives

We examine the effect of the most-favored-nation provision in input prices on downstream firms' R and D incentives. Contrary to the previous literature, we show that the effect depends on the extent of substitutability between downstream firms if they compete in two-part tariffs. When a downstream firm lowers its marginal cost, it entails two conflicting effects on the upstream firm's pricing for inputs, the standard elasticity effect of penalizing the low-cost firm and the market share effect of rewarding it. If substitutability between downstream products is high enough, the latter dominates the former, and thus downstream firms will choose a higher marginal cost technology under the MFN provision.

The Effect of Area HMO Market Share on Cancer Screening

Managed care may have widespread impacts on health care delivery for all patients in the areas where they operate. We examine the relationship between area managed care activity and screening for breast, cervical, and prostate cancer among patients enrolled in more managed care plans and patients who are enrolled in less managed plans. Data on cancer screening from the 1996 Medical Expenditure Panel Survey (MEPS) were linked to data on health maintenance organization (HMO) and preferred provider organization (PPO) market share and HMO competition at the metropolitan statistical area (MSA) level. Logistic regression analysis was used to examine the relationship between area managed care prevalence and the use of mammography, clinical breast examination, Pap smear, and prostate cancer screening in the past two years, controlling for important covariates. Among all patients, increases in area-level HMO market share are associated with increases in the appropriate use of mammography, clinical breast exam, and Pap smear (OR for high relative to low managed care areas are 1.75, p < .01, for mammography, 1.58, p < .05, for clinical breast exam, and 1.71, p < .01, for Pap smear). In analyses of subgroups, the relationship is significant only for individuals who are enrolled in the nonmanaged plans; there is no relationship for individuals in more managed plans. No relationship is observed between area HMO market share and prostate cancer screening in any analysis. Neither the level of competition between area HMOs nor area PPO market share is associated with screening rates. Area-level managed care activity can influence preventive care treatment patterns.

Global competition and global markets: some empirical results

The purpose of this paper is to develop and test a model that relates the profit rates of multinational firms to market share, other firm characteristics, and industry effects where the relevant geographic markets are defined at the global level. We test the proposition that market share and industry fixed effects can explain profitability variation for a sample of multinational firms. The most important finding is that market share has a positive and statistically significant effect on profit rates for a sample of Fortune Global 500 firms. Moreover, the Fortune Global 500 firms exhibit strong industry effects. While there are a number of explanations for a positive market share effect and strong industry effects, a common interpretation is the presence of rivalry among these firms.

A hazard rate analysis of Russian commercial banks in the period 1994–1997

The number of commercial banks in Russia increased at a fast pace after the 1988 banking reform. Many of these banks lacked supervision and operated with dangerously low funding capital. After the 1995 liquidity crisis, many of these banks disappeared. In this paper, we investigate the determinants of the hazard rates of banks active on the Moscovian deposits market during the 1994–1997 period. We find that market share and duration have negatively affected the hazard rate, while the deposit interest rate has had a positive effect. The market share and interest rate effects are robust to controlling for ‘financial clans’.

Agent‐based model for economic impact of free software

AbstractThis article describes the potential impact that free (i.e., open source) software can have on an existing commercial software market. A model for the software market is constructed in terms of autonomous agents, which represent the users, the companies, and the free software providers. The model specifies a reservation price for each user agent and develops a gradient learning strategy for revenue‐maximizing company agents. Simulations explore parameters such as the demand distribution, and the relative importance of market share, advertising and random effects in product visibility. Results from the case without free software show a prevalence of monopolies, which is consistent with other studies of high‐technology market economics. The effects of free software are not uniform, but are highly parameter dependent. A “capture region” is found in which free software eventually dominates the market. © 2003 Wiley Periodicals, Inc.

Competitive One-to-One Promotions

One-to-one promotions are possible when consumers are individually addressable and firms know something about each customer's preferences. We explore the competitive effects of one-to-one promotions in a model with two competing firms where the firms differ in size and consumers have heterogeneous brand loyalty. We find that one-to-one promotions always lead to an increase in price competition (average prices in the market decrease). However, we also find that one-to-one promotions affect market shares. This market-share effect may outweigh the effect of lower prices, benefiting the firm whose market share increases. Our results suggest that of two firms, the firm with the higher-quality product may gain from one-to-one promotions. Our model also has implications for the phenomenon of customer churn, where consumers switch to a less preferred brand due to targeted promotional incentives. We show that churning can arise optimally from firms pursuing a profit-maximizing strategy. Instead of trying to minimize it, the optimal way to manage customer churn is to engage in both offensive and defensive promotions with the relative mix depending on the marginal cost of targeting.

An artificial neural net attraction model (ANNAM) to analyze market share effects of marketing instruments

Attraction models are very popular in marketing research for studying the effects of marketing instruments on market shares. However, so far the marketing literature only considers attraction models with certain functional forms that exclude threshold or saturation effects on attraction values. We can achieve greater flexibility by using the neural net based approach introduced here. This approach assesses brands’ attraction values by means of a perception with one hidden layer. The approach uses log-ratio transformed market shares as dependent variables. Stochastic gradient descent followed by a quasi-Newton method estimates parameters. For store-level data, neural net models perform better and imply a price response that is qualitatively different from the well-known multinomial logit attraction model. Price elasticities of neural net attraction models also lead to specific managerial implications in terms of optimal prices.

Explaining Variations in the Advertising &amp; Promotional Costs/Sales Ratio: A Rejoinder

In 1994, the authors (see Ailawadi, Farris, and Parry 1994) reported the results of a failed attempt to validate the findings of Balasubramanian and Kumar's (1990) empirical analysis of the determinants of the firm-level ratio of advertising and promotion to sales (A&P/S). Balasubramanian and Kumar (1997) have now listed several concerns with the authors’ 1994 analysis—of which two data preparation errors are valid. However, these errors have no impact on the main thesis of the authors 1994 article—market share and market growth are not good predictors of A&P/S. The authors also have analyzed currently available COMPUSTAT data, and their findings once again invalidate Balasubramanian and Kumar's (1990) results. The authors can only reiterate their earlier conclusion—neither currently available COMPUSTAT data, Profit Impact of Market Strategy data, nor brand-level data show any significant effect of market share and market growth on A&P/S. The authors conclude that Balasubramanian and Kumar's (1990) findings are simply not valid, and there is no way to identify what exactly led to their unique results because they have not made available their original data set.

Explaining Variations in the Advertising &amp; Promotional Costs/Sales Ratio: A Rejoinder

In 1994, the authors (see Ailawadi, Farris, and Parry 1994 ) reported the results of a failed attempt to validate the findings of Balasubramanian and Kumar's (1990) empirical analysis of the determinants of the firm-level ratio of advertising and promotion to sales (A&amp;P/S). Balasubramanian and Kumar (1997) have now listed several concerns with the authors’ 1994 analysis—of which two data preparation errors are valid. However, these errors have no impact on the main thesis of the authors 1994 article—market share and market growth are not good predictors of A&amp;P/S. The authors also have analyzed currently available COMPUSTAT data, and their findings once again invalidate Balasubramanian and Kumar's (1990) results. The authors can only reiterate their earlier conclusion—neither currently available COMPUSTAT data, Profit Impact of Market Strategy data, nor brand-level data show any significant effect of market share and market growth on A&amp;P/S. The authors conclude that Balasubramanian and Kumar's (1990) findings are simply not valid, and there is no way to identify what exactly led to their unique results because they have not made available their original data set.

Auditor Market Share, Product Differentiation and Audit Fees

Abstract This study examines the effects of auditor market share and product differentiation on audit fees. Previous studies have attributed the price premium charged by the Big Eight (the Big Six in the present study) to Big Eight product differentiation. However, such a price premium could be partly due to monopoly pricing. In the present study, the Hong Kong audit market provides a unique setting in which a non-Big Six local auditor has a market share comparable to those of the third and fourth largest Big Six firms. This makes it feasible to control for the effects of market share via matching. Also, the wide disparity among the Big Six firms ‘market shares in Hong Kong makes it feasible to test for the effects of market power on audit fees. The results show that, consistent with prior studies, the Big Six audit firms charge higher audit fees than non-Big Six firms in the small auditee, but not the big auditee, market. This suggests that similar economic forces to those other audit markets are also at...

Composite Dependent Variables and the Market Share Effect

Farris, Parry and Ailawadi (1992; hereafter denoted FPA) demonstrate that bias can arise in a regression involving a composite dependent variable where a subset of components of the dependent variable are used as explanatory factors. They correctly observe that the Jacobson and Aaker (1985; hereafter denoted JA) model has explanatory factors that are also components of the ROI dependent variable and, as such, is subject to “composite variable bias.” FPA note that another way of viewing composite variable bias is that the coefficients in the model reflect not their impact on the dependent variable but rather their impact on the dependent variable less the elements of the components included as explanatory factors. As such, additional effects (analogous to indirect effects) may be present to the extent strategic factors influence the included components. FPA conclude that such bias explains the low estimate of the market share effect reported in JA. However, FPA's attempt to replicate our analysis and assess composite variable bias is flawed by a mistake in their analysis, i.e., their disaggregate models do not follow from the JA aggregate specification. The purpose of this note is to correctly assess the extent to which the JA estimate of the market share effect is affected by composite variable bias and to suggest approaches for modeling a composite dependent variable in the presence of unobservable factors. In particular, we (i) show that the disaggregate specifications of FPA do not follow from JA, (ii) look at specifications not subject to composite variable bias to investigate the magnitude of the composite variable bias in JA, and (iii) provide a disaggregate modeling framework that controls for unobservable effects.