Product Complementarity Research Articles

Monetary policy and sentiment-driven fluctuations

Sentiments, or beliefs about aggregate demand, can be self-fulfilling in models departing slightly from the complete information benchmark in the New Keynesian framework. Through its effect on aggregate variables, the policy stance determines the degree of complementarity in firms' production (pricing) decisions and consequently, the precision of endogenous signals that firms receive. As a result, aggregate fluctuations can be driven by both fundamental and non-fundamental shocks. The distribution of non-fundamental shocks is endogenous to policy, introducing a novel tradeoff between stabilizing output and inflation. Both strong inflation targeting and nominal flexibilities increase the variance of non-fundamental shocks, which are shown to be suboptimal. Moreover, the Taylor principle is no longer sufficient to rule out indeterminacy. Instead, an interest rate rule that places sufficiently low weight on inflation eliminates non-fundamental volatility and thereby the output-inflation tradeoff.

The economic roots of cross‐national similarity in voter preferences

AbstractWe argue that economic and political integration leads voters' political preferences toward cross‐national convergence. Analyzing data on voter preferences across 30 European democracies from 1976 to 2022, we measure the similarity of preference distributions across state dyads over time, documenting an average increase in similarity over this period. We then model these associations statistically and find that greater similarity and complementarity in economic production and co‐participation in the European Union and the Eurozone are associated with increasingly similar voter preferences. The argument and analyses broaden our understanding of the political implications of globalization and also provide a theoretical and empirical foundation for two growing literatures: one on the cross‐national diffusion of parties' strategies and one on the political implications of macroeconomic stimuli such as trade shocks or banking crises.

Beyond bundles: Choosing product bundles increases shopping basket size

Grocery stores are increasingly grouping complementary products into meal bundles, a tactic that warrants further investigation. This research explores the impact of presenting bundles on overall purchases. Three experiments, supplemented with two studies and a meta-analysis in a Web Appendix, show that incorporating bundles into the assortment and having consumers select these bundles increases overall purchases. This effect is driven by consumers perceiving the bundled items as a unified whole, which alters their perception of product complementarity and leads them to underestimate their total purchases, prompting them to buy more. These findings underscore the efficacy of product bundling to enhance shopping basket size, a critical determinant of retail success.

The impact of co-branding on consumer purchase intentions in the automotive industry

This study aims to delve into the influence of co-branding on consumer purchase intentions in the automotive industry and the impact of brand image. It seeks to analyze how co-branding is carried out, its characteristics, and how it affects consumers' brand perceptions and purchase decisions, especially exploring consumers' acceptance and willingness to buy co-branded products. A quantitative research methodology is adopted, involving questionnaire design and data collection through an online survey. Multiple analyses, such as frequency, reliability, validity, factor, correlation, and regression analyses, are conducted to examine the data. Co-branding has a positive effect on consumer purchase intention. Brand fit, innovativeness, and product complementarity are crucial factors contributing to the success of co-branding. Brand image has a positive moderating impact, and complementary brand images enhance consumers' purchase intention. The study also reveals that these factors can explain a significant portion of the variance in purchase intention. Automobile brands can enhance their attractiveness and market competitiveness by engaging in co-branding with suitable brands, focusing on brand fit, innovation, and product complementarity. Maintaining and enhancing a positive brand image is of great importance. Additionally, demographic information can help brands target consumers more effectively and design co-branding campaigns that better meet consumers' needs and preferences. These findings offer practical guidance for marketers to utilize co-branding strategies more efficiently and boost brand value.

The seeds of misallocation: Fertilizer use and maize varietal misidentification in Ethiopia

Optimal input allocation in agriculture leverages production complementarities. For example, improved seeds are generally more responsive to fertilizer than traditional seeds. Thus, inaccurate beliefs about whether seeds are improved may result in sub-optimal fertilizer application. We document precisely this pattern using data from Ethiopia that allows us to compare farmer beliefs about their maize seeds with genotyping data that identify the true genetics of these seeds. We find that 15 percent of farmers believe incorrectly that they are using improved varieties and use far more fertilizer than farmers who correctly believe that they sowed traditional varieties. Conversely, we find that about 15 percent of farmers believe incorrectly that they are growing traditional material and use far less fertilizer than those farmers who correctly believe that they are growing improved material. We extrapolate from our nationally representative sample to estimate the national-level magnitude of fertilizer misallocation due to incorrect seed beliefs.

Gender Complementarity in the Process of Anchovies Production in North Sumatran Coast Communities

This study investigated the nuanced dynamics of gender complementarity within the context of anchovy production, focusing on the coastal communities of North Sumatra. In recent years, increased awareness of gender dynamics has underscored their crucial role in socio-economic spheres, particularly within fisheries. Anchovies, both an integral economic driver and a significant nutritional resource, serve as a focal point for examining the complex interplay between gender roles, responsibilities, and contributions in the production process. This exploratory study was conducted using an ethnographic approach, this research deeply immersed itself in the daily lives of North Sumatra’s coastal communities. Through extended engagement, participant observation, and a multifaceted methodology involving firsthand experiences, systematic observations, and in-depth interviews, the study aimed to capture a comprehensive understanding of the sociocultural dynamics shaping gender complementarity in anchovies production. Findings revealed that the anchovy production process has established a productive work cycle, significantly contributing to the local economy, particularly for women, and positively influencing the overall economic conditions of the community. Keywords: Gender Complementarity , Sustainable Fisheries, Domestic Economy, Anchovies Production, Tanjungbalai

Production complementarity and information transmission across industries

Economic theory suggests that production complementarity is an important driver of sectoral co-movements and business cycle fluctuations. We operationalize this concept using a measure of production complementarity proximity (COMPL) between any two companies. We show firms from different industries but are closely aligned in COMPL exhibit strong co-movement in their operating, investing, and financing activities, as well as quarterly earnings revisions and monthly returns. We further document a lead-lag effect in their returns, such that a long-short strategy based on recent COMPL peer returns yields a monthly 6-factor alpha of 122 basis points. This inter-industry momentum spillover effect is not explained by other network-based mechanisms, such as shared analyst coverage. We conclude information transmission takes place along complementarity networks, but stock prices do not update instantaneously.

Dynamic game analysis of E-commerce platform rewards and research & development investment of settled enterprises

Contributing to the literature on the E-commerce platform governance, this paper analyzes the e-commerce platform's optimal reward strategy and settled enterprises' optimal Research & Development (R&D) investment decision with different R&D patterns. The results indicate that the platform's rewards can increase settled enterprises' R&D investment and overall benefit of the ecosystem. Under R&D competition pattern, the platform's optimal reward is positively correlated with the technology spillover effect. Under R&D cartels and RJV competition patterns, the platform's optimal reward will increase as the degree of product complementarity. Under R&D competition pattern, settled enterprises' R&D investment and product quality reach the optimum.

Contracting and search with heterogeneous principals and agents

This paper incorporates a risk-neutral principal-agent problem into a random search model to study contracting and search in general equilibrium. I introduce heterogeneity in principals' and agents' production technologies in terms of the distribution of output across states of nature. Under optimal contracting, this heterogeneity can give rise to complementarity in contracting between specific principal and agent types. In contrast to complementarity in production, complementarity in contracting affects only the division of the surplus but not its size and can induce principals to engage in overly intense search before forming a match. I show that a reduction in search frictions and contractual innovations can induce principals to engage in overly intense search.

Operation of Digital Banking Products in Albania

The major aim of the paper is to assess the expansion of the digital banking products’ use and to analyze its driving factors like the level of trust in digital banking, the amount of knowledge needed to effectively use its products, the evolution of the customer relationship with the bank, and the new role of banks in the Albanian financial market. The analysis of these factors relies mainly on the identification of the economic motives for the group under observation, the psychological factors that condition their relationship with money, and the legal obligations to use bank payment tools. The study used the quantitative method. The data are collected through a questionnaire that is distributed to a carefully selected sample and contains questions that made it possible to carry out a factual, grounded, and consistent assessment. It contributes to highlighting the approach for increasing the use of digital banking products both among the young generation and the whole population. At the same time, this study provides commercial banks with beneficial information on the diversification and complementarity of the banking products, the new services that banks can offer to this group of the population, and their repositioning in the financial market of the future.

Human Capital and Financial Development: Firm-Level Interactions and Macroeconomic Implications

Abstract Capital-skill complementarity in production implies non-trivial interactions between the availability of human capital and financial constraints. Firms that are constrained in their access to finance hire a lower proportion of skilled workers than do unconstrained firms. Conversely, a lack of human capital increases skilled wages, reducing firms’ desired capital intensity and thus loosening firms’ effective financial constraints. To assess the macroeconomic implications of such firm-level interactions, we build an occupational-choice model with capital-skill complementarity in production, which we calibrate to US data. We vary financial frictions, educational attainment and total factor productivity across countries, and we quantify how aggregate output, wage inequality and entrepreneurship are affected by financial market liberalizations and increases in educational attainment. For aggregate output, the joint effect of both factors is, on average, 30% larger than the sum of the individual effects. Taking the educational attainment of the population as given, in countries with a negligible share of tertiary-educated workers and low total factor productivity, financial development has only small effects on aggregate output.

Vertical Relationships with Hidden Interactions

In an agency model with adverse selection, we study how hidden interactions between agents affect the optimal contract. The principal employs two agents who learn their task environments through their involvement. The principal cannot observe the task environments. It is important to note that hidden interactions, such as acts of sabotage or help between the agents, have the potential to alter each other’s task environments. Our analysis encompasses two distinct organizational structures: competition and cooperation. Without hidden interactions, the competitive structure is optimal because the cooperative structure only provides the agents with more flexibility to collusively misrepresent their task environments. With hidden interactions, however, the cooperative structure induces the agents to help each other to improve the task environments while removing sabotaging incentives at no cost once collusion is deterred. As a result, the cooperative structure can be optimal in such a case. We discuss the link between production technology and organizational structure, finding that complementarity in production favors cooperative structures.

Labor market dynamics with sorting

I study a dynamic search-matching model with two-sided heterogeneity, a production complementarity that induces labor market sorting, and aggregate shocks. In response to a positive productivity shock, incentives to sort increase disproportionately. Firms respond by posting additional vacancies, and the strength of the response is increasing in firm productivity. The distribution of unemployment worker types adjusts slowly, which amplifies job creation in the short run. In the long run, falling unemployment curtails the firms' vacancy posting. The model closely matches time-series moments from U.S. labor market data and produces realistic degrees of wage dispersion and labor market sorting.

Pricing and bundling strategies for complementary products in a closed-loop green supply chain under manufacturers’ different behaviors

This study attempts to incorporate product complementarity and bundling strategy with green innovation and remanufacturing in a two-stage supply chain. For doing so, it considers a green closed-loop supply chain that combines two manufacturers and a typical retailer to deal with complementary products. Based on the manufacturer-led Stackelberg game-theoretic approach, it first develops two models considering the bundling strategies of the retailer. Each of these two models again establishes three sub-models under consideration of whether the manufacturers make their decisions jointly or simultaneously or sequentially. The optimal responses and the profitability under various models are compared both analytically and numerically to get some insights. The results exhibit that (a) regardless of different bundling strategies, the sequential decision-making scenario is beneficial for the leading manufacturer while the joint decision-making scenario is profitable for another manufacturer, the retailer, and the entire supply chain, (b) no bundling strategy is preferable in a green-sensitive market, even though it gives less profit to channel individuals, (c) in the Stackelberg scenario, the decision of which of two manufacturers will profit more depends on product complementarity and the residual values obtained from end-of-used products acquisition and their handling, and (d) the level of product complementarity and bundle price discount play important role in determining the appropriate bundling strategy.

Capital-skill complementarity and regional inequality: A spatial general equilibrium analysis

This paper employs a large scale numerical spatial general equilibrium model featuring capital-skill complementarities in production to study the distributional implications of a capital-augmenting technological shift across regions and skills groups. Similarly to the existing literature, we find a negative relationship between the labour income share and the capital labour-ratio. Our counterfactual shows that the effects are quite uneven across skills and regions, benefiting mostly high-skilled workers at the detriment of the low and the medium skilled. This is particularly so in more developed regions compared with less developed ones. We show that the effects stem from regional initial conditions, and in particular the regional capital–labour ratio, trade linkages and unemployment rates.

Getting sick for profit? The impact of cumulative ICT and management changes on long term sickness absence

This article evaluates the impact of cumulative ICT and management changes on long-term sickness absences. We use a unique dataset matching a company-level survey on computerisation and organisational change with an administrative file allowing us to track health issues amongst the working population. We implement a difference-in-difference approach using two time windows: a three-year period after changes have occurred and another period corresponding to the period of implementation of changes. We identify three treatments according to the sets of tools implemented by firms and reflecting different types and degrees of organisational changes: Information and Communication technology (ICT) changes only, management changes only, and cumulative ICT and management changes.We find the following core result: cumulative changes in ICT and management tools increase occupational risks and detrimentally affect employees’ health, while management changes only reduce long-term sickness absences. However, there are gendered and occupational differences in the timing and strength of these impacts. First, when firms implement cumulative ICT and management changes, health impairments start for women during the change phase, whereas for men, they appear only afterwards. Second, while we observe the protective effects of managerial changes on their own for both genders during the change phase, these effects do not persist afterwards for women. Third, managers and professionals are protected in the change phase against the serious health consequences of cumulative ICT and management changes, and they benefit from the reduction in risks associated with management changes alone.Hence, cumulative ICT and management changes, which are likely to yield the highest returns for firms in the presence of productive complementarities, are also associated with greater health damage. Furthermore, this social cost of organisational change is only partially borne by the firms responsible for it. We show that the most vulnerable employees are more likely to be mobile (voluntarily or involuntarily) after the implementation of changes.These results point to the need for public authorities assessing occupational safety and health policies to better understand the process of organisational change (its complexity, intensity, dynamics) and the social construction of health behaviours and of the uses of technology and management tools.

Business cycle asymmetry and input-output structure: The role of firm-to-firm networks

We study the network origins of business cycle asymmetries using cross-country and administrative firm-level data. At the country level, we document that countries with a larger number of non-zero intersectoral linkages (denser networks) display a more negatively skewed cyclical component of output. At the firm level, we find that firms with a larger number of suppliers and customers (degrees) display a more negatively-skewed distribution of their output growth. To rationalize these findings, we construct a multisector model with input-output linkages and show that the relationship between output skewness and network density naturally arises once we consider non-linearities in production. In an economy with low production flexibility (inputs are gross complements), denser production structures imply that relying on more inputs becomes a risk that further amplifies the effects of negative productivity shocks. The opposite holds if firms display high production flexibility (inputs are gross substitutes): having more inputs to choose from becomes an opportunity to diversify the effects of negative productivity shocks. We calibrate the model using our rich firm-to-firm network Chilean data and show that more connected firms experience larger declines in output in response to a COVID-19 shock, consistent with the data. We also show that, as in the data, the cross-sectional distribution of output growth in the model displays a fatter left tail during downturns. The previous result is shaped by the interplay between production complementarities and network interconnectedness, rather than by the asymmetry of the shocks. The size of the shock determines the strength of the relationship between degrees and output decline, which highlights the importance of non-linearities and the limitations of local approximations.

Analysis on Trade Competition and Complementarity of High-Quality Agricultural Products in Countries along the Belt and Road Initiative

The Belt and Road Initiative was proposed by China in 2013 as a response to sluggish global economic growth. With most countries along the Belt and Road being developing countries, it is crucial to strengthen trade cooperation in agricultural products. However, the current literature lacks an analysis of the competitiveness and complementarity of agricultural products in these countries. This study aims to fill this gap by showing that the Belt and Road Initiative has reduced agricultural export competitiveness and increased agricultural trade complementarity. Several factors influence the similarity and complementarity of agricultural exports in participating countries along the Belt and Road, including geographical distance, level of economic development, free trade agreements, degree of country openness, exchange rates, cultural differences, share of agricultural value added, and level of infrastructure. The detailed analysis shows that the Belt and Road Initiative has significantly improved the quality of the agricultural exports of participating countries. The results of this paper provide a theoretical basis for the high-quality development of agricultural products in participating countries along the Belt and Road.

Complementarity on software as a service platform

AbstractA platform owner offers product A. A third‐party firm develops a complementary product B: An additional value is created when the two products are consumed together. Access to the platform owner's customer base would broaden the third‐party firm's market reach. First, the third‐party firm chooses the quality of its product. Then, the platform owner and the third‐party firm simultaneously set their prices. We find that a higher level of product complementarity gives the third‐party firm an incentive to raise its quality; however, access to the platform may result in either a higher or a lower quality.

The role of the spatial relationships between visitor attractions in shaping visiting patterns

ABSTRACT Visitor attractions are a primary tourism product. Yet, little is known about the interrelationships between attractions’ spatial characteristics, their thematic similarities, and product complementarities, and inter-attractions’ compatibility. Furthermore, at the intra-attraction level, the relationships between thematic diversity, complementarities and attraction's appeal remain overlooked. This paper suggests a conceptual framework and empirical approach to explore these relationships econometrically while controlling for tourism cluster density. Based on the conceptual model, several hypotheses were drawn and tested via empirical models by using the primary data from 300 visiting tracks of a random sample of visitors to attractions, surveyed in-situ during a single trip. These observations created the secondary data for 161 combinations (bundles) of attractions. Employing a negative-binomial regression to explain compatibility, we found that intra-level thematic diversity decreases compatibility between attractions and that visitors preferred to visit fewer attractions with more thematic diversity, than visiting more attractions that are less diversified. The paper concludes with policy implications and provides insights into bundling in the context of tourism diversification.