Marginal Investment Costs Research Articles

Two-Sided Beneficial Value-Added Service Investment and Pricing Strategies in Asymmetric/Symmetric Investment Scenarios

We explore media platforms’ investment strategies for two-sided beneficial value-added services, which can directly benefit both consumers and advertisers, and ad pricing strategies by using game theory. We consider an asymmetric investment scenario, scenario A, and a symmetric investment scenario, scenario S, and develop game models under each scenario. First, we obtain the equilibrium investments, prices and profits and analyze the influence of the three important parameters—marginal investment costs, positive consumer effects and negative advertising effects, on the equilibrium outcomes in each scenario. Then we compare these equilibrium outcomes between both scenarios. Finally, we conduct numerical simulations to verify the conclusions obtained in both scenarios. We show that in scenario A, the value-added service levels and ad prices of the investment platforms remain constant and then decrease with marginal investment costs. The ad prices and profits of the investment platforms increase (decrease) with positive consumer effects (negative advertising effects). The same change is true for the value-added service levels only under certain conditions. In scenario S, the value-added service levels of the investment platforms change with positive consumer effects or negative advertising effects only when marginal investment costs are high. The ad prices of the platforms always increase with positive consumer effects but increase with negative advertising effects only when marginal costs are low. The profits of the platforms vary monotonically with negative advertising effects, but not necessarily with positive consumer effects. Compared to scenario S, the ad prices of the investment platforms in scenario A are higher, but that is not always true for the value-added service levels.

Value-added service investment and pricing decisions in two-sided platform: the role of user expectations

PurposeThis paper aims to investigate how user expectations affect value-added service (VAS) investment and pricing decisions of two-sided platforms. It draws on the information asymmetry theory and offers suggestions on how platform operators can manage user expectations.Design/methodology/approachAccording to the game theory, this study considers three user expectations (responsive, passive and wary). By framing the Hotelling duopoly model and comparing the VAS investment, price and platform profits, the optimal platform decision is analyzed and discussed.FindingsThe conclusions demonstrate that the monopolistic two-sided platform obtains more profits from the informed users with responsive expectations than uninformed users with passive or wary expectations. The marginal investment cost and cross-network externalities are two key factors that determine the platform's VAS investment and pricing strategies of passive or wary users. Furthermore, considering the expectation preferences, i.e. the uniformed users hold wary expectations with more information and hold passive expectations with less or no information, the results suggest that the proportion of wary users to all uninformed users increases the platform's VAS investment, profits and the price of informed users, and increase (decrease) the price of uninformed users when the cross-network externalities of informed users are relatively small (larger).Practical implicationsThese results can provide insightful enlightenment into how platform operators utilize bilateral users' expectations and information level to guide their VAS investment and pricing decisions.Originality/valueThis paper is one of the first to explore the impact of three user expectations and the heterogeneity of preferences in informing users' passive or wary expectations, based on different levels of information on the decision-making of two-sided platforms regarding VAS.

Taxes or subsidies to promote investment in green technologies for a supply chain considering consumer preferences for green products

This paper investigates the impact of green subsidies and emissions taxes on the development of green technologies for a supply chain consisting of a manufacturer and a retailer. The manufacturer is responsible for green technologies investing, and the retailer is responsible for marketing and selling products to consumers with green preferences. The government is free to choose between emissions taxes or green subsidies to promote green technologies. The results show: (1) Subsidy policies provide a greater incentive for manufacturers to reduce pollution. (2) When the marginal cost of investment in green technology is low, or the marginal damage cost of pollution is high, green subsidies than emission taxes lead to higher profits for manufacturers. (3) Green subsidies lead to higher profits for retailers than emissions taxes when the marginal cost of investment in green technology is lower. (4) Manufacturers and even supply chains are more profitable with environmental regulations than without them. This finding verifies the existence of Porter's hypothesis. (5) If the marginal cost of green technology is low or the marginal damage cost of pollution is high, the government seeking to maximize social welfare should choose a green subsidy policy; otherwise, it should apply an emissions tax.

The ownership effect on corporate investment distortion in the transitional economies: Mitigating or exacerbating?

This article analyzes how asymmetric information in corporate management and equity financing distorts corporate investment and how different corporate ownership (government, managerial, and foreign) affects investment distortion in a transitional economy. When managerial entrenchment is sufficiently high, government ownership further distorts investment by biasing downward managers’ net marginal cost of investment; in contrast, managerial and foreign ownership counter the bias and thereby reduce investment distortion. Furthermore, unlike government ownership, managerial and foreign ownership mitigate rather than exacerbate the extent to which high entrenchment distorts investment. An econometric analysis of a large sample of Chinese public firms provides strong evidence in support of these theoretical predictions.

Initial coin offerings, asymmetric information, and loyal CEOs

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer lower financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty.

Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis

This paper develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts. First, the analysis extends the Ricardian equivalence result to an environment with production and establishes that a temporary tax cut financed by a future tax-increase has no real effect if the tax is lump-sum and capital markets are perfect. Second, it shows that in the presence of financing frictions which raise the cost of investment, the policy temporarily relaxes the financing constraint thereby reducing the marginal cost of investment. This direct effect implies positive marginal propensities to invest out of tax cuts. Third, when the tax is distortionary, the expectation of high future tax rates reduces the expected marginal return on investment mitigating the direct stimulative effects.

Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis

This paper develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts. First, the analysis extends the Ricardian equivalence result to an environment with production and establishes that a temporary tax cut financed by a future tax-increase has no real effect if the tax is lump-sum and capital markets are perfect. Second, it shows that in the presence of financing frictions which raise the cost of investment, the policy temporarily relaxes the financing constraint thereby reducing the marginal cost of investment. This direct effect implies positive marginal propensities to invest out of tax cuts. Third, when the tax is distortionary, the expectation of high future tax rates reduces the expected marginal return on investment mitigating the direct stimulative effects.

Epigenetic paternal effects as costly, condition-dependent traits.

It is now recognized that post-copulatory traits, such as sperm and ejaculate production can impose metabolic costs, and such traits are therefore expected to exhibit condition-dependent expression, whereby, low condition individuals experience a greater marginal cost of investment compared to high condition individuals. Ejaculates are especially costly in species where males invest in offspring quality through nutrient-rich spermatophores or other seminal nuptial gifts. However, recent evidence shows that, in species where males do not provision females or offspring, males can still influence offspring development through paternal effects mediated by epigenetic factors, such as non-coding RNAs, DNA methylation and chromatin structure. Because such epigenetic paternal effects do not involve the transfer of substantial quantities of resources, such as nutrients, the costs of conferring such effects have not been considered. Here we argue that if selection favours paternal investment in offspring quality through epigenetic factors, then the epigenetic machinery required to bring about such effects may also be expected to evolve strongly condition-dependent expression. We outline indirect evidence suggesting that epigenetic paternal effects could impose substantial metabolic costs, consider the conditions under which selection may act on such effects, and suggest ways to test for differential costs and condition-dependence of these effects. Incorporating epigenetic paternal effects into condition-dependent life history theory will further our understanding of the heritability of fitness and the evolution of paternal investment strategies.

CEO Loyalty and the Pricing of Initial Coin Offerings

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer less financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty.

Prospects for applications in human health of nanopore-based sequencing

High throughput sequencing has opened up new clinical opportunities moving towards a medicine of precision. Oncology, infectious diseases or human genomics, many applications have been developed in recent years. The introduction of a third generation of nanopore-based sequencing technology, addressing some of the weaknesses of the previous generation, heralds a new revolution. Portability, real time, long reads and marginal investment costs, these promising new technologies point to a new shift of paradigm. What are the perspectives opened up by nanopores for clinical applications?

How much do consumers really value air travel on-time performance, and to what extent are airlines motivated to improve their on-time performance?

This paper estimates the value consumers place on air travel on-time performance (OTP), and the extent to which airlines are motivated to improve their OTP. We find robust evidence that consumers value OTP and are willing to pay to avoid delays. Airlines can invest to improve OTP, but would independently choose to do so only if on-time performance improvement leads to increases in profitability. Using a methodology that does not require having actual cost data to draw inference on cost changes associated with improvement in OTP, we analyze airlines' optimal OTP-improvement investment choice. The modeling framework allows us to provide estimates of OTP-related marginal investment costs per minute of improvement necessary to achieve specific percent reductions in arrival delay minutes from the current levels of arrival delay minutes observed in the data.

Primary energy benefits of cost-effective energy renovation of a district heated multi-family building under different energy supply systems

The European Union's Directive on energy performance of buildings emphasizes the need to take cost-effectiveness into account when measures are implemented for improved building energy efficiency. In this study, we investigate cost-effective energy renovation measures for a district heated building under different contexts, including varied locations, energy supply systems and economic scenarios. We determine the final and primary energy savings of cost-effective energy renovation packages for the building in the different contexts. The measures analysed include: improved insulation for attic floor, basement walls, and exterior walls; improved windows and doors; resource-efficient taps; heat recovery of exhaust ventilation air; energy-efficient household appliances and lighting. We consider three existing Swedish energy supply systems of varying district heat production scale and tariffs, and also plausible renewable-based energy supply systems. Our analysis calculates the final energy savings of the measures including the cost-effective renovation packages on hourly basis and links these to the different energy supply systems. The cost-effectiveness analysis is based on a double-stage optimization method, considering total and marginal investment costs of renovation measures as well as associated net present values of total and marginal cost savings. The results show that significant final and primary energy savings can be achieved when energy renovation measures are implemented for the building in the different contexts. This study shows that heat demand in existing Swedish building could be about halved while electricity use may be reduced considerably with cost-effective energy renovation measures. The economic viability of the renovation measures is sensitive to the economic regimes especially discount rates and energy price increase.

Final energy savings and cost-effectiveness of deep energy renovation of a multi-storey residential building

In this study we present a method for analysis of cost-effectiveness of end-use energy efficiency measures and demonstrate its application for modelling a wide range of energy renovation measures for a typical 1970s multi-family building in Sweden. The method integrates energy balance and bottom-up economic calculations considering total and marginal investment costs of energy efficiency measures as well as net present value of total and marginal savings of the measures. The energy renovation measures explored include additional insulation to basement walls, exterior walls, and attic floor, improved new windows, efficient electric appliances and lighting, efficient water taps, glazed enclosed balcony systems, and exhaust air ventilation heat recovery systems. The measures are analysed first individually and then designed to form economic packages. Our results show that improved windows give the biggest single final energy savings while resource-efficient taps is the most cost-effective measure for the building. We find that the cost-effectiveness of the energy renovation measures is sensitive to real discount rates and energy price increases. Cost-optimal final heat savings varies between 34% and 51%, depending on the choice of real discount rate and energy price increase. The corresponding electricity savings varies between 35% and 43%. This study shows a method and the significance of various technical and economic-related parameters in achieving deep energy savings cost-efficiently.

Can collusion promote sustainable consumption and production?

Several competition authorities consider the exemption of horizontal agreements among firms from antitrust liability if the agreements sufficiently promote public interest objectives such as sustainable consumption and production. We show that when consumers value sustainable products and firms choose investments in sustainability before choosing output or prices, coordination of output choices or prices boosts investments in sustainability and may even enhance consumer surplus when products are sufficiently close substitutes and the marginal cost of investment in sustainability is relatively low. By contrast, coordination of investments in sustainability leads to lower investments and harms consumers.

A neoclassical interpretation of momentum

The neoclassical theory of investment implies that expected stock returns are tied with the expected marginal benefit of investment divided by the marginal cost of investment. Winners have higher expected growth and expected marginal productivity (two major components of the marginal benefit of investment), and earn higher expected stock returns than losers. The investment model succeeds in capturing average momentum profits, reversal of momentum in long horizons, long-run risks in momentum, and the interaction of momentum with several firm characteristics. However, the model fails to reproduce the procyclicality of momentum as well as its negative interaction with book-to-market equity.

Cost recovery from congestion tolls with long-run uncertainty

According to the Cost Recovery Theorem the revenues from optimal congestion tolls pay for the capacity costs of an optimal-sized facility if capacity is perfectly divisible, and if user costs and capacity costs have constant scale economies. This paper extends the theorem to long-run uncertainty about investment costs, user costs, and demand. It proves that if constant scale economies hold at all times and in all states, and if the toll can be varied freely over time and by state, then expected discounted congestion toll revenues cover expected discounted investment costs over a facility׳s lifetime. If the marginal cost of investment is constant and investment is reversible, expected cost recovery also holds for each investment. If demand is relatively price inelastic, cost recovery is sensitive to estimated initial demand and estimated growth rate of demand. Natural variability in demand can result in substantial surpluses or deficits over a facility׳s lifetime.

Investments in next generation access infrastructures under regulatory uncertainty

This article studies the impact of regulatory uncertainty on an incumbent’s incentives to undertake the socially optimal investments in NGA networks. Thus, a regulatory non-commitment setting in which the regulator sets the access price after the deployment of the NGA network is used. In particular, it is assumed that the regulator sets the access price at the marginal cost of providing the access with some probability and gives an access markup, which equals the average cost of the investments, with the complementary probability. It is found that when the slope of the marginal investment cost function is not particularly steep in relation to the impact of investments on demand, the incumbent underinvests compared to the socially optimal investment level. On the contrary, in a more realistic case when the impact of investments on demand is low in relation to the slope of the marginal investment cost function, the incumbent may overinvest or underinvest depending on the probability of incorporating an access markup into the access price.

Inflation, human capital and Tobin's q

A strong US postwar low frequency negative correlation exists between inflation and Tobin's q. To explain this, a production-based monetary asset pricing model is formulated with a rising marginal cost of investment, cash-in-advance and human capital based endogenous growth. Higher money supply growth causes higher inflation, lower output growth, and a lower q in the long run. The baseline model simulates well correlations of the US inflation rate and Tobin's q at each frequency of high, business cycle, low, and the “medium term.” It also performs well in correlations and volatilities compared to related exogenous growth versions.

Agency Conflicts, Prudential Regulation, and Marking to Market

We develop a model of a financial institution to show how prudential capital regulation and mark-to-market accounting interact to affect the institution’s project choices in the presence of shareholder—debt holder agency conflicts. We demonstrate that, relative to a benchmark “pure historical cost” regime in which assets and liabilities on an institution’s balance sheet are measured at their origination values, mark-to-market or fair value accounting could alleviate the inefficiencies arising from asset substitution, but exacerbate t arising from underinvestment due to debt overhang. The inefficiencies due to underinvestmen t and asset substitution work in opposing directions. An increase in the propensity for asset substitution mitigates underinvestment, and this tradeoff is especially pronounced for highly levered financial institutions. The optimal choices of the accounting measurement regime and prudential solvency constraint balance the conflicts between shareholders and debt holders. Under fair value accounting, the optimal solvency constraint declines with the institution’s marginal cost of investment in project quality and the excess cost of equity capital relative to debt capital. The optimal solvency constraint is institution-specific, which suggests that a uniform solvency constraint could be sub-optimal. In fact, if the solvency constraint in the fair value regime is sub-optimally chosen to be tighter than a threshold, historical cost accounting dominates fair value accounting.

Economically-efficient port expansion strategies: An optimal control approach

This paper proposes an analytical model with a control approach to obtain an optimal port expansion strategy by balancing investment costs for the port and congestion costs for its users. Starting point is the optimality condition that marginal investment costs should balance marginal benefits. Particularly the scale effect in investment costs is considered; the consequence that the investment will be made in different stages is included in the solution. By relaxing some assumptions in the model, a numerical optimization algorithm is proposed which is applied to show how the approach can be used to deal with a practical expansion problem.