Profit Elasticity Research Articles

국내 소분류 제조업 시장의 경쟁지표 측정 : 이윤탄력성을 중심으로

국내 소분류 제조업 시장의 경쟁지표 측정 : 이윤탄력성을 중심으로

The Evolution of Banking Competition in Italian Credit Markets Using a Profit Elasticity Approach

The Evolution of Banking Competition in Italian Credit Markets Using a Profit Elasticity Approach

Product Quality Matching Strategy in a Dual-Channel Supply Chain: A Perspective From Mental Accounting Theory in Behavioral Finance

We extend the mental accounting perspective to build models on product quality matching strategy, which is effective in resolving the conflict between traditional and online channels. We consider that perceived values of high-quality and low-quality products belong to different mental accounts, and construct three product quality matching strategies for a dual-channel supply chain. Comparing the profit of each member, we find that (1) the strategy where the traditional channel distributes premium products, while the e-tailer sells low-quality products, is most conducive to the manufacturer; (2) the profit elasticity of the e-tailer is larger than that of the traditional retailer; (3) traditional retailers should sell more price elastic products, and e-tailers should sell the product with lower price elasticity; and (4) the manufacturer has more monopoly power if consumers have a higher degree of acceptance for the online channel that distributes premium products.

Economic Efficiency of Outsourcing Business Models: A Comparative Assessment.

This study aims to form a methodological approach to assess outsourcing business models and identify the most acceptable one for a modern enterprise. The research methodology is based on the author's approach, which includes cognitive map analysis and a simplicial complex. The study was tested on two Information Technology companies in Russia. Based on the determination of the profit elasticity on the manageable vertices of outsourcing business models, the most attractive in terms of efficiency criterion in the form of profit is the outsourcing business model of developing in-house non-IT services. The analysis of structural connectivity made it possible to rank the factors by the level of importance for the preservation of the business model. Modeling the effectiveness of implementing the formed outsourcing business models provided an opportunity to increase profits for the investigated IT companies by increasing the number of single-type projects. The conducted modeling of changes in relations with customers in the studied IT enterprises shows the inexpediency of changing customer relations in BM3. It is proved that certain factors can be replaced without losing the integrity of the business model. The scientific contribution of this study is the proposed methodological approach for assessing the effectiveness of an outsourcing business model. Based on the application of this methodology, the strategic objectives are linked to the business model in the process of achieving them (the achievement of strategic objectives under the influence of the selected outsourcing business model is shown).

Panel Granger Causality between Bank Competition and Profitability for Multinational Banks in Sub Saharan Africa

There is marked high profitability of banks, and high banking competition in sub Saharan Africa. The nature of the market structure dictates the existing level of competition and profitability. This paper applies a panel granger causality test to investigate the direction of causality between competition and profitability in sub Saharan Africa. Investigation uses the World Bank Data (2007-2017) for the listed best performing multinational banks in 2016 in the region, obtained from the Bankscope for analysis. Bank competition is measured using profit elasticity index (Boone Indicator) while profitability is measured using ROA. Estimation uses a two step ‘system’ generalized method of moments and finds a positive, bi-directional granger causality between competition and profitability. This implies that rapid spread of multinational banking groups in sub Saharan Africa region is motivated by both high level of bank competition and profitability. High competition raises longrun bank profitability but also, high profits motivates entry of rival banks into the industry. Therefore, to scholars, great caution should be taken when defining the dependent and independent variables in studies that concern the relationship between competition and profitability of banks, given this finding of presence of a stead state equilbrium in sub Saharan Africa.

The effects of competition on management practices in New Zealand – a study of manufacturing firms

Competition is a key factor in driving performance improvements across a range of firm activities including reductions in costs, increasing the levels of productivity, promoting entrepreneurial efforts, fostering innovation, driving better management practices, and exercising strategic managerial decisions. The questions of how and why competitive market forces influence management practices are the focus of this paper. Using data on management practices from 152 New Zealand manufacturing firms, and competition data obtained for various industries of the NZ economy, we examine the association between different dimensions of competition and management practices. Notably, we find little or no association between better management practices and competition when utilising simpler measures of competition, namely the number of competitors, industry concentration measured by HHI and the price-cost margin are used. However, using a more refined measure of competition, competition intensity characterised by profit elasticity, has a positive and significant association with the quality of management practices adopted by firms.

Bank Stability and Competition: Evidence from Albanian Banking Market

This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.

An Empirical Comparison between Societal Expenditure and Marketing Expenditure on Bank’s Performance

Marketing expenditure plays a crucial role in determining performance since promotion mix generates market shares and revenues for the brands. But, nowadays, the impact of promotional expenditure is appeared to be non-responsive to influence the revenue and profitability as the consumers are now having ample scopes of escaping advertisement. Moreover consumers prefer the products that are associated with some social cause. Hence the purpose of this paper is to compare the impact of societal and marketing expenditure on profitability. To attain the purpose, we have employed empirical results of various Indian banks by developing a model using profit after tax (PAT), societal and marketing expenses. In particular, we have considered log-linear model as it fits better for all the banks when compared with the linear model. Further, we have compared the profit elasticity between societal and marketing expenses. Finally, association between the profit performance status and the comparative profit contribution at equal expenditure has been tested by employing non-parametric χ² test and Cramer’s V. Result proves the efficiency of ‘expenditure in social concern’ compared to ‘Expenditure in traditional marketing tools’ and hence it suggests for adopting alternative route, that is, societal means of promotion for better customer connect.

Competition in the Portuguese economy: insights from a profit elasticity approach

The article uses the elasticity of profits to marginal costs, as in Boone (Econ J 111:1245–1261, 2008b), to measure the degree of competition in the Portuguese economy in a period characterised by the reallocation of resources towards the non-tradable sector and the accumulation of macroeconomic imbalances. Using firm-level data for the period 2000–2009, we find that there is lower competition intensity in the non-tradable sector. The least competitive markets within this sector lay in professional services, network industries and segments of retail trade. We also find that reductions in competition intensity are relatively widespread in the economy, but in terms of sales, gross value added and employment they are more substantial in the non-tradable sector. Results suggest that some network industries and other services exhibit low and a declining competition intensity in the period under analysis. In addition, the article discusses the coherence of the profit elasticity with classic indicators of market power, such as the Herfindahl–Hirschman index and the price-cost margin, and find that in more than half of the markets there is an agreement in the dynamics of competition intensity.

Measuring bank competition under binding interest rate regulation: the case of China

ABSTRACTMany empirical studies suggest that financial reform promoted bank competition in most mature and emerging economies. However, some earlier studies that adopted conventional approaches to measure competition have concluded that bank competition in China declined during the past decade, despite progressive reforms implemented since the 1980s. We show that this apparent contradiction is the result of flawed measurement. Conventional indicators such as the Lerner index and Panzar–Rosse H-statistic fail to measure competition in Chinese loan markets properly due to the system of interest rate regulation. By contrast, the profit elasticity (PE) approach does not suffer from these shortcomings. Using balance sheet information for a large sample of banks operating in China during 1996–2008, we show that competition actually increased in the past decade when the PE indicator is used.

Влияние человеческого капитала на прибыль предприятий и организаций России

Through econometric models construction the author evaluates the effects of
 capital-labor ratio and human capital, where the latter is characterized by the
 employees’ educational level, on profits of enterprises and organizations,
 operating in Russia. In 2009 the capital-labor ratio and the human capital, as
 estimated by the employees’ educational level, could be considered responsible
 for no less, than 39% of profitability of enterprises and organizations. For the
 most part this effect is due to the capital-labor ratio, while the lesser, though
 essential part of the said effect is due to the employees human capital. It is
 shown, that the elasticity of profit in terms of employees human capital exceeds
 manifold the profit elasticity in terms of capital-labor ratio, meaning that the
 effect of changes in human capital level on the labor productivity exceeds
 manifold that of changes in capital-labor ratio. Therefore, to enhance the human
 capital through better education of employees is more beneficial, than to
 increase investments in basic capital assets.

A New Data Set On Competition In National Banking Markets

We estimate the degree of competition in the banking sectors of 148 countries over the period 1997–2010 using three methods: the Lerner index, the adjusted Lerner index, and the profit elasticity. Marginal cost estimates required for all methods are obtained using a flexible semi‐parametric methodology. All three indices show that competitive conditions in banking deteriorated during the period 1997–2006, improved until 2008, and deteriorated again thereafter. Levels of competition differ across regions and income groups, but there is gradual convergence over time. Banking system is less competitive in sub‐Saharan Africa and low income countries and more competitive in Europe and Central and South Asia and OECD countries.

How to measure competition in an economy in transition

This paper attempts to find a robust method of measuring competition when firms' operational activities are subject to frictions. The first part theoretically tests the indicative quality of two competition measures, the price-cost margin (PCM) and the profit elasticity, in a model of monopolistic competition. The second part studies the empirical performance of the indices for a panel of Ukrainian manufacturing firms. This study offers a new approach to measuring profit elasticity that relies on structural estimation of a production function. The estimation methodology retrieves a productivity index that is adjusted to imperfect competition. The proposed method of measuring profit elasticity is found to be robust to frictions, but the PCM and traditional profit elasticity are biased, especially when the intensity of competition is low. Empirical findings show that competition exhibits a significantly positive correlation with aggregate productivity performance, while its impact on firm productivity is nonlinear.

A New Data Set on Competition in National Banking Markets

We estimate the degree of competition in the banking sectors of 148 countries over the period 1997-2010 using three methods: the Lerner index, the adjusted Lerner index, and the profit elasticity. Marginal cost estimates required for all methods are obtained using a flexible semi-parametric methodology. All three indices show that competitive conditions in banking deteriorated during the period 1997-2006, improved until 2008, and deteriorated again thereafter. Levels of competition differ across regions and income groups, but there is gradual convergence over time. Banking systems in less competitive sub-Saharan Africa and low income countries and more competitive in Europe and Central and South Asia and OECD countries.

Measuring Bank Competition in China: A Comparison of New Versus Conventional Approaches Applied to Loan Markets

Since the 1980s, important and progressive reforms have profoundly reshaped the structure of the Chinese banking system. Many empirical studies suggest that financial reform promoted bank competition in most mature and emerging economies. However, some earlier studies that adopted conventional approaches to measure competition concluded that bank competition in China declined during the past decade, despite these reforms. In this paper, we show both empirically and theoretically that this apparent contradiction is the result of flawed measurement. Conventional indicators such as the Lerner index and Panzar-Rosse H-statistic fail to measure competition in Chinese loan markets properly due to the system of interest rate regulation. By contrast, the relatively new Profit Elasticity (PE) approach that was introduced in Boone (2008) as Relative Profit Differences (RPD) does not suffer from these shortcomings. Using balance sheet information for a large sample of banks operating in China during 1996-2008, we show that competition actually increased in the past decade when the PE indicator is used. We provide additional empirical evidence that supports our results. We find that these firstly are in line with the process of financial reform, as measured by several indices, and secondly are robust for a large number of alternative specifications and estimation methods. All in all, our analysis suggests that bank lending markets in China have been more competitive than previously assumed.

Does Rent-sharing Profit Female and Male Workers? Evidence from Israeli Matched Employer-Employee Data

This paper analyses the impact of workplace characteristics on individual wages based on a unique cross-section matched employer–employee data set for the Israeli private manufacturing sector in 1995. Specifically, we examine the effects of the interaction between profit-sharing and wages on the gender wage gap. The empirical findings show that individual compensation is significantly and positively correlated with firms’ profits-per-employee, even when controlling for all of the following: group effects in the residuals, individual and firms’ characteristics, industry wage differentials and endogeneity of profits. Wage–profit elasticity is found to be 11 per cent and it does not significantly differ between genders. With respect to the overall gender wage gap (on average women earn 28 per cent less than men), the results show that within firms there is no gender discrimination and that 12 per cent of this gap can be explained by the wage–profits profile and by the fact that women are more likely to be employed in less profitable firms than men.

Performance and profit sensitivity to risk: a practical evaluation of the agro-industrial projects developed by Israeli companies for the CIS and Eastern European countries

International companies take part in many tenders for agro-industrial projects in the Commonwealth of Independent States and Eastern European countries. The market for these projects is analyzed and found to be favorable for companies and developers. Major projects developed in recent years are presented and evaluated in terms of financial performance. Additionally, a method of project evaluation by profit sensitivity to risk criterion is proposed. In this method, the approximate formula for profit sensitivity to risk (when basic production and market assumptions change simultaneously) is derived using a cost-volume-profit model. This method allows minimal calculations to explain profit sensitivity and elasticity within the usual indicators of business planning: operational profitability and degree of operating leverage. The consistency of project ranking is examined using Cronbach's alpha and correlation coefficients. The ranks obtained by various performance criteria are found to be consistent with each other, but not with those obtained by profit sensitivity to risk. In terms of elasticity, project profitability is a much stronger influence than the degree of operating leverage on profit sensitivity to risk.

Competition in the Portuguese Economy: Insights from a Profit Elasticity Approach

This article segments the Portuguese economy into fairly disaggregated markets and estimates a new competition measure suggested by Boone (2008), which draws on the concept of profit elasticity to marginal costs. In addition, robustness of results across econometric specifications is discussed, along with their consistency with classical competition indicators. The article concludes that the majority of Portuguese markets exhibited a reduction in competition in the period 2000-2009, though there is substantial heterogeneity. In addition, markets that faced competition reductions represent the large majority of sales, gross value added and employment in the Portuguese economy. The non-tradable sector shows lower competition intensity than the tradable sector. Moreover, reductions in competition are relatively widespread across markets in both sectors, but in terms of sales, gross value added and employment these reductions are more substantial in the non-tradable sector. In the majority of markets the assessment on the evolution of competition using profit elasticities is similar to that obtained with classical competition indicators. JEL Classification: L10, L60, O50

When is the Price Cost Margin a Safe Way to Measure Changes in Competition?

The price cost margin (PCM) is a popular way to measure competition. Although we know that this measure is not without problems, we actually do not know how often and under which conditions a change in PCM points in the wrong direction. We use a new competition measure, the profit elasticity, which is more robust than PCM. Our empirical analysis based on Dutch data shows that when competition changes the probability that PCM points in the wrong direction increases with industry concentration.

Evolution of Competition in Vietnam Industries over the Recent Economic Transition

Abstract Vietnam has gone through massive economic restructuring from a socialist command economy to market-oriented economy. This provides an excellent example of a country that has experienced changes in competition regime. Economic reforms in late 1980s and 1990s and the introduction of pro-competitive policies in the first half of 2000s have radically altered the economic and, in particular, competitive environment. Understanding the evolution of competition across industries is an important step towards understanding the impact of economic reform on the economic performance of Vietnam as a result of the economic transition. In this paper, the authors investigate the evolution of competition in Vietnam during the economic transition using the price-cost margin (or Lerner Index) and the profit elasticity measure recently developed by Boone (Competition, 2000). This paper provides the first empirical study of intensity and evolution of competition across majority of industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO).