Product Complementarity Research Articles

Multilateral matching

We introduce a matching model in which agents engage in joint ventures via multilateral contracts. This approach allows us to consider production complementarities previously outside the scope of matching theory. We show analogues of the first and second welfare theorems and, when agents' utilities are concave in venture participation, show that competitive equilibria exist, correspond to stable outcomes, and yield core outcomes. Competitive equilibria exist in our setting even when externalities are present.

Couples' Time Together: Complementarities in Production versus Complementarities in Consumption.

Economists have previously suggested that gains from marriage can be generated by complementarities in production (gains from specialization and exchange) or by complementarities in consumption (gains from joint consumption of household public goods and joint time consumption). This paper uses the American Time Use Survey (ATUS) from 2003-2011 to test whether couples that engage in less specialization (are more similar in hours of market work) spend more time together. We find that among married couples without young children, those with a greater difference in weekly hours of work between husband and wife spend less time together on non-working weekend days. Importantly, we find that this relationship is quite symmetric between couples in which the husband works greater hours and couples in which the wife works greater hours. We do not find evidence of a relationship between specialization and couple time together among couples with young children.

Racial Discrimination in the U.S. Labor Market: Employment and Wage Differentials by Skill

In the US labor market the average black worker is exposed to a lower employment rate and earns a lower wage compared to his white counterpart. Lang and Lehmann (2012) argue that these mean differences mask substantial heterogeneity along the distribution of workers' skill. In particular, they argue that black-white wage and employment gaps are smaller for high-skill workers.In this paper we show that a model of employer taste-based discrimination in a labor market characterized by search frictions and skill complementarities in production can replicate these regularities. We estimate the model with US data using methods of indirect inference. Our quantitative results portray the degree of employer prejudice in the US labor market as being strong and widespread, and provide evidence of an important skill gap between black and white workers. We use the model to undertake a structural decomposition and conclude that discrimination resulting from employer prejudice is quantitatively more important than skill differences to explain wage and employment gaps. In the final section of the paper we conduct a number of counterfactual experiments to assess the effectiveness of different policy approaches aimed at reducing racial differences in labor market outcomes.

Jared Diamond and Peter Turchin: Two contemporary theories of social collapse

Theories of social collapse are not only the views that characterize ?societies deep in crisis?, but rather an expression of lack of belief in prosperity and central importance of the civilization in which we live. These theories follow processes of degradation of human societies, the decline of civilization`s powers and the loss of its cultural values resulting in their complete disappearance. This paper defines the subject of study and provides an overview of the history of these theories and their contemporary types by taking the main causes of collapse criteria as the basis for theory building. After the review of contemporary multi-factor analysis of collapse, mainly within the science of complex systems, full attention is focused on two atypical, yet very productive, contemporary theories of social collapse that are elaborated in detail: Jared Diamond`s theory, which studies social collapses by observing relations of other variables that can lead to collapse with environmental problems as central; and Peter Turchin`s theory which, revitalizing with modern scientific achievements Ibn Khaldun`s classical theory of ?asabia? (group feeling, spirit of community), sees social collapses as a consequence of the decline of cohesion provided by asabia. The final part of the work gives a critical review of these two theories and their relation with classical theories of social collapse (primarily those of Arnold Toynbee) and points to their mutual productive complementarity.

Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play

We analyze firms' incentives to bundle and tie in the telecommunications industry. As a first step, we develop a discrete-choice demand model where firms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a firm may sell. We exploit these properties to examine bundling behavior when firms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify firm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.

Bundling products to success: The influence of complementarity and advertising

This study investigates the strategic influence of product complementarity and advertising on the success of bundling products. We use a profit maximization model to show that when a firm sells bundled products, both the product complementarity and advertising significantly impact the performance of bundled products. The bundling strategy with advertising can help firm achieve higher performance than the bundling strategy without advertising. However, the price discount to the identical products must be attractive to customers and the degree of product complementarity to the complementary products must be large enough, and then the bundling strategy with advertising can obtain a success in the market. Furthermore, our results also show that when the degree of the complementarity between two products increases, firm should invest less on advertising to promote the bundled products. Based on our results, we propose optimal marketing strategies for firms to adopt. Firm managers can utilize our findings to plan their bundling strategies wisely.

Policy effects of the elasticity of substitution across labor types in life cycle models

This paper investigates how the production function elasticity of substitution across different labor types impacts the results of policy analysis in multiperiod lived agent overlapping generations models. We critique and investigate the popular structure that simply assumes that workers with different age, experience or education are perfectly substitutable in production. This structure is inconsistent with empirical evidence of production complementarities. We couch our findings in the context of two types of policy reforms: a social security reform and a tax reform. These reforms were chosen in part not only because of the large interest in them, but also because of their differing effects on life cycle decisions. We find that ignoring production complementarity may influence the conclusions of policy analysis.

Buying and selling information under competition

Markets for information products exhibit varying degrees of competition on both the supply and the demand side. This paper studies the potential complementarity of information products, equilibrium information buying behaviors and information price setting in such markets. Our game-theoretic model consists of two information providers selling imperfect information to two competing clients and allows for different information quality levels as well as varying degrees of client competition. Absent of client competition, information providers compete on the statistical properties of the information they supply (i.e., the accuracy of the information). The competitive price can be high because of potential complementarity among information products when these are not very reliable. However, this may change when the clients are competing against each other. We adopt a reduced-form model of buyer competition that reflects situations where information buyers face discrete alternatives. We find that a buyer gains more through information acquisition when its competitor is less informed, suggesting a first mover advantage in information acquisition. More importantly, we also find that intense client competition can make the information products more substitutable, resulting in a lower equilibrium price for information. Furthermore, this effect leads to harsh competition between information providers and consequently provides incentives for exclusive contracting. In summary, it is found that the “quality” of information has a very different impact on sellers’ profits depending on the degree of client competition.

Immigrant–native wage gaps in time series: Complementarities or composition effects?

Previous research has shown that immigrants’ wages decrease when the supply of immigrants increases. This negative correlation has been interpreted as evidence of immigrant–native complementarities in production. The present study finds that it is instead due to changing immigrant composition.

The Optimal Distribution of the Tax Burden over the Business Cycle

This paper analyses optimal income taxes over the business cycle under a balanced-budget restriction, for low, middle and high income households. A model incorporating capital-skill complementarity in production and differential access to capital and labour markets is developed to capture the cyclical characteristics of the US economy, as well as the empirical observations on wage (skill premium) and wealth inequality. We find that the tax rate for high income agents is optimally the least volatile and the tax rate for low income agents the least counter-cyclical. In contrast, the path of optimal taxes for the middle income group is found to be very volatile and counter-cyclical. We further find that the optimal response to output-enhancing capital equipment technology and spending cuts is to increase the progressivity of income taxes. Finally, in response to positive TFP shocks, taxation becomes more progressive after about two years.

Celebrating diversity: people, place and purpose. A synthesis of the 17th biennial conference of the Australian Rangeland Society

Eight overarching impressions drawn from the 17 th biennial conference are presented which are generally compatiblewithviewsonfuturechallengesanddirectionsforrangelandscienceandmanagementexpressedindependently in a recent international forum. These impressions relate to (1) loss of research capacity, especially in the southern rangelandsofAustralia, (2) aneedforgreatercollaborationandrole clarityinrangelandsresearch anddevelopment,(3)the importance of scaling issues in the conduct and application of research, (4) widespread understanding of rangelands as social-ecological systems, (5) complementarity of production and biodiversity conservation, (6) progress in regional planning, (7) policy as a legitimate field of research endeavour, and (8) a need to question the 'traditional' perspective on rangeland science.

Celebrating diversity: people, place and purpose. A Special Issue from the 17th Biennial Conference of the Australian Rangeland Society

Eight overarching impressions drawn from the 17 th biennial conference are presented which are generally compatiblewithviewsonfuturechallengesanddirectionsforrangelandscienceandmanagementexpressedindependently in a recent international forum. These impressions relate to (1) loss of research capacity, especially in the southern rangelandsofAustralia, (2) aneedforgreatercollaborationandrole clarityinrangelandsresearch anddevelopment,(3)the importance of scaling issues in the conduct and application of research, (4) widespread understanding of rangelands as social-ecological systems, (5) complementarity of production and biodiversity conservation, (6) progress in regional planning, (7) policy as a legitimate field of research endeavour, and (8) a need to question the 'traditional' perspective on rangeland science.

Las ventajas laborales de la aglomeración del capital humano en los muncipios colombianos

This paper explores whether the agglomeration of human capital leads to social employment advantages in urban labor markets of Colombia. It compares employment opportunities in urban areas where the level of education differs while controlling for plausible confounders using census data for 1993 and 2005. Results show that employment opportunities are higher on average in skilled urban areas than in low-skilled urban areas. Recent literature has offered at least three explanations for this positive effect: human capital externalities, production complementarities, and consumption spillovers. To distinguish between them, I analyze the effect of an increase on the college share on the employment rate for different education groups. An increase in the supply of college graduates only affects the employment rates of primary and high-school dropouts. Human capital externalities and production complementarities explain the spatial employment differences in Colombia.

The Strategic Effect of Bundling: A New Perspective

This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink.

Regional Productive Complementarity and Competitiveness

A positive international environment favors growth of the several economies in a given region, but it does not assure that the differences in the economic potential of the several countries are reduced in this process. Alternatively, the presence of productive complementarities might foster competitiveness and contribute to increasing the degree of homogeneity, even in situations of adverse terms of trade. This article reviews the experience of six sub-regional groups in Asia and Latin America in the last two decades. Latin America has recently benefitted from significant improvement in terms of trade and yet the economies in that region remain as different in their relative economic potential as they were in the beginning of the 1990s. In Asia, however, the negative impact of terms of trade has not blocked a quite fast pace of GDP growth; furthermore, productive complementarity has led to an increasing convergence of the several economies, with a sharp increase in their share of the international market. There are clear lessons from the Asian experience.

Sentiments and Aggregate Demand Fluctuations

We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made under imperfect information about demand, optimal decisions based on sentiments can generate stochastic self-fulfilling rational expectations equilibria in standard economies without persistent informational frictions, externalities, non-convexities or strategic complementarities in production. The models we consider are deliberately simple, but could serve as benchmarks for more complicated equilibrium models with additional features.

Optimizing management regimes for carbon storage and other benefits in uneven-aged stands dominated by Norway spruce, with a derivation of the economic supply of carbon storage

This study sought optimal sustainable management regimes of uneven-aged Norway spruce-dominated stands with multiple objectives. The criteria were financial returns, CO2 sequestration and diversity of tree size and species. At prevailing timber prices, harvest and transport costs, and interest rates, uneven-aged management for timber alone was most profitable with a 5-year cutting cycle. Lengthening the cutting cycle to 20 years decreased the net present value from timber by 10%, but raised the carbon storage by 21%, the tree species diversity by 32%, and the tree size diversity by 24%. Maximizing CO2 sequestration induced an almost pure spruce stand. A compromise policy maximized CO2 storage, while maintaining a rate of return on the capital of standing trees equal to the interest rate. A supply curve for CO2 storage was derived, showing how much forest owners would be willing to sequester as a function of the price of CO2. Maximizing the NPV from combined CO2 storage and timber production showed complementarity of CO2 storage and timber production for up to NOK 300 Mg−1 of CO2, and sustained, though lower, timber production at higher CO2 prices.

Classification of business clusters based on information transfer events

This paper examines the utility of the attributes associated with information transfer events for classifying business clusters and understanding their workings. A field survey collected data from diverse actors in six business clusters located in Brazil, including: companies responsible for the development or final assembly of a product or service (central actors); the entity that represents the companies in each business cluster (the administrative body); and the entities seeking to transfer information to the central actors of localities (knowledge agents). We found that differences in the degree of productive complementarity on the part of central actors of business clusters were associated with variance in perceptions of information transfer events that took place in localities. To our knowledge this is the first research which analyzes and classifies business clusters based on dimensions of information transfer which are relevant to the practice of knowledge management.

Evidence on the Impact of R&D and ICT Investment on Innovation and Productivity in Italian Firms

The paper investigates R&D and ICT investment at firm level, assessing their relative importance and the extent to which they are complements or substitutes. We use data on a large unbalanced panel sample from four consecutive waves of a survey of Italian manufacturing firms, together with a version of the model developed by Crepon et al., 1998, modified to include ICT investment and R&D as the two main inputs of innovation and productivity. We find that R&D and ICT are both strongly associated with innovation and productivity, with R&D being more important for innovation and ICT for productivity. We explore their possible complementarity in innovation and production but find none, although there is complementarity between R&D and worker skill in innovation.

Why Do Complementors Participate? An Analysis of Partnership Networks in the Enterprise Software Industry

In the enterprise software industry, large providers (hubs) are fostering partner networks with smaller companies (spokes) that complement their platforms. This study takes the perspective of these spokes and seeks to understand their motivation to partner. It is the first to simultaneously examine two theoretical perspectives that help explain partnership formation. The input-oriented perspective holds that organizations enter inter-firm arrangements in order to access external resources and capabilities. The output-oriented perspective posits that the complementarity of the partners' products influences the benefits obtained from a partnership. In order to examine the relevancy and possible interaction of these two perspectives, a multiple-case study is conducted. Qualitative data from 17 spoke organizations is gathered and thoroughly analyzed. The study confirms that the hub's reputation and its capability to provide integrated systems are generally important reasons for partnering. However, the extent to which the hub's innovativeness and its commercial capital motivate spokes to partner varies substantially. The key finding of this study is that these variations can be explained by differences in the level of product complementarity. This leads to the conclusion that there is a widely neglected interaction effect between the input- and output-oriented perspectives in explaining the formation of hub-and-spoke partnerships.