Strategic Behavior Of Firms Research Articles

A dynamic analysis of the firms in oligopoly market structure: a case study

Purpose Over the last years, powerful advances in the area of dynamic games have enriched game theory and made it more applicable to the modeling of real-world competitive strategies. The study of strategic behaviors of firms in an oligopoly market has received little attention, even though real firms have been shown to compete in output and in price in a single industry. The purpose of this study is to propose a game-theoretic approach to studying strategic behaviors of firms in an oligopoly market structure. Design/methodology/approach This approach was developed to study market dynamics and pricing strategic behavior of firms that have the possibility of deciding to be one of the two types (price-maker or price-taker) and reconsider the choice overtime on the basis of their current insights and knowledge and their experience. Firms try to improve their performance in the competitive market in a strategic way, by considering their steady-state profits and choosing the best type given the other firms’ types, actions and interactions. Findings The results of the present study confirm the previous study that the Cournot market is a stable market, where each firm can be a price-maker and enjoy individual learning as well as social learning. On the contrary, the market with price-takers only is never stable, and, therefore, the Walrasian equilibrium may not be supported in some instances. The Cournot market loses its stability as the number of firms in the market increases due to the fact that it will be more profitable for a firm to switch to price-taking when the number of firms is high enough. In such a situation, when the number of price-takers increases, there are no stable markets and price dynamics are destabilized. Originality/value The study and modeling of real-world competitive strategies would enhance the understanding of oligopoly markets. The study of strategic behaviors of firms in an oligopoly market has received little attention, even though real firms have been shown to compete in output and in price in a single industry as price-takers and price-makers.

Within‐ and across‐province agglomeration of LEED certifications in China

AbstractThis paper investigates the adoption patterns of Leadership in Energy and Environmental Design (LEED) certification in China, analyzing data from 2010 to 2021. We find that builders' choices of certification levels are positively correlated within each province. However, for commercial buildings, builders differentiate from each other in the choice of certification levels. The study also identifies spatial spillovers of LEED certification across nearby provinces. We propose potential explanations for these findings and discuss their policy implications. The results suggest that the design of certification schemes should account for the strategic behavior of firms. Additionally, regional policies promoting green building certifications may have spillover effects, encouraging adoption in neighboring regions.

Mixture of Large and Small Firms in General Equilibrium

Purpose - This paper develops a tractable model of general equilibrium featuring a (1) mixture of large and small firms in a sector, (2) managerial activities of large firms, and (3) leadership of large firms over small firms in product and labor markets. This paper aims to incorporate strategic firm behavior into a general equilibrium.
 Design/Methodology/Approach - This paper launches a game-theoretic approach for a mixture of large and small firms within an industry. Within the framework, small firms form a coalition to stand against large firms. Thus, it models that large firms and the coalition of small firms interact strategically. Unlike small firms, large firms hire managers to supervise production workers and improve production efficiency.
 Findings - With manager skills, the leadership of large firms is enhanced. That is, the market share of large firms expands, while that of small firms shrinks. With the shrinkage, firm selection occurs within the coalition of small firms. Thus, small firms of low-ability entrepreneurs exit the sector, and the resources are reallocated toward higher skills and higher-ability entrepreneurs. Large firms affect the pattern of labor demand by creating higher-paying jobs for skills.
 Research Implications - As large firms have stronger market leadership, aggregate income increases and wage inequality widens. This paper can contribute to the literature of oligopolistic competition and general equilibrium.

The motivation and impact of polluting Enterprises' diversifications: Quasi-natural experiments from environmental protection interview

In the background of China's central government's intensive efforts to prevent and control pollution, a deep understanding of the enterprises' short-term strategic behavior is essential to the implementation of environmental policies. This paper identifies the impact of Environmental Protection Interview (EPI) on the diversification of polluting enterprises using a difference-in-differences method with a sample of listed companies in A-share market from 2010 to 2020. The study finds that: First, EPI significantly contribute to the diversification of polluting enterprises in the interviewed areas. Second, sewage charges increase the cost of compliance with environmental regulations and push back diversified behaviors of polluting enterprises, while environmental subsidies help enterprises to identify the pathways to cleaner production and weaken the level of diversification of polluting enterprises. Finally, the inherent motivation for the diversified practices of the polluters in the interviewed areas is not to alleviate the financing constraints of the enterprises but is the benefit encroachment by major shareholders and the self-interest pursuit of high remuneration by the senior managers, and it ultimately leads to a decrease in the value of polluting enterprises and the scale of environmental protection investment. This paper not only extends the study on the short-term strategic behavior of firms in response to environmental regulation but also provides important empirical evidence to understand the drivers and consequences of corporate diversification.

The pre-IPO dividend and IPO underpricing: Evidence from China

More than one in five listed firms in China pay cash dividends during the year right before their initial public offerings (IPOs). This paper examines the association between pre-IPO dividend payment and IPO pricing using manually collected Chinese data from 2006 to 2019. We find that firms initiating pre-IPO dividends tend to have lower IPO underpricing than non-initiating firms. We also find that the effect of pre-IPO dividend initiation on IPO underpricing is more pronounced for firms with greater pre-IPO growth and profitability. Additional analyses indicate that initiating firms have better pre- and post-IPO operating performance and post-IPO stock performance. Moreover, initiating firms pay more dividends and attract significantly higher post-IPO investor attention. Collectively, the pre-IPO dividend initiation is not a short-term strategic behaviour of low-quality firms, but aims to send positive signals and improve investors' stock valuation.

Asymmetric general oligopolistic equilibrium

AbstractWe explore the effects of country asymmetries in a general oligopolistic equilibrium model with segmented markets. Firms' oligopolistic behaviour in segmented markets has macro‐level effects when countries' characteristics or policies are asymmetric. Due to their effect on strategic firm behaviour, country asymmetries can induce deviations from the law of one price, which gives rise to terms‐of‐trade based international shifts in consumption and welfare. We demonstrate that by studying the welfare and distributional effects of asymmetric labour market policies.

Differential impact of chief executive officer tenure on the firm's external and internal corporate social responsibility: Moderating effects of firm's visibility and slack

AbstractInconsistent corporate social responsibility (CSR) practices across stakeholder groups may induce undesired consequences for the firm. This study investigates the longitudinal and differential effect of chief executive officer (CEO) tenure on external and internal CSR and the moderating effects of two important contingencies relevant to the firm's social investments: firm visibility and slack availability. It presents CEO tenure as an important upper echelon factor that may induce differential preferences toward external and internal CSR and, therefore, CSR inconsistencies. Accordingly, it proposes two important and relevant contingencies and provides additional evidence on how a firm's visibility and slack availability could affect CEO tenure‐related differential behaviors. The findings contribute to studies on the temporal orientations of CEOs and how they impact firm strategic behavior. They also contribute to the literature on firm visibility and slack and how they may interact with certain upper echelon characteristics and affect firm behaviors. The analysis cautions against the perceptions of the relationships between firm‐ and CEO‐level variables and a firm's aggregate CSR.

The effect of economic growth target constraints on ESG

ABSTRACT The economy-based growth governance of local government departments significantly influences the strategic behaviour of firms in their jurisdictions. We mainly explore how local economic growth targets affect ESG transformation. Results indicate that the higher the local economic growth target is set, the lower the level of ESG transformation of companies is. Additionally, the inhibitory effect of local economic goals on ESG in State-owned enterprises has been significantly higher than that in non-SOEs.

Firms’ environmental R&D cooperation strategy with strategic corporate social responsibility

ABSTRACT Whether to cooperate with a competitor on environmental R&D is a dilemma for firms. This paper develops a duopoly model to investigate firms’ environmental R&D cooperation strategy with corporate social responsibility (CSR). There are two CSR strategy structures (i.e. mixed CSR strategy structure and CSR compliance strategy structure) to be analysed considering the strategic CSR behaviour of firms. The result shows that regardless of the CSR strategy structures of two competing firms, CSR can always promote environmental R&D cooperation. Furthermore, we find that CSR can generate higher environmental R&D investment but not necessarily higher social welfare under environmental R&D cooperation. Finally, we show that mixed CSR strategy structure is optimal when firms collaborate on environmental R&D.

Computational Performance of Deep Reinforcement Learning to Find Nash Equilibria

We test the performance of deep deterministic policy gradient—a deep reinforcement learning algorithm, able to handle continuous state and action spaces—to find Nash equilibria in a setting where firms compete in offer prices through a uniform price auction. These algorithms are typically considered “model-free” although a large set of parameters is utilized by the algorithm. These parameters may include learning rates, memory buffers, state space dimensioning, normalizations, or noise decay rates, and the purpose of this work is to systematically test the effect of these parameter configurations on convergence to the analytically derived Bertrand equilibrium. We find parameter choices that can reach convergence rates of up to 99%. We show that the algorithm also converges in more complex settings with multiple players and different cost structures. Its reliable convergence may make the method a useful tool to studying strategic behavior of firms even in more complex settings.

Blood and Water: Information Technology Investment and Control in Family-owned Businesses

ABSTRACT Family-owned businesses differ in their strategic intent and behavior as they serve as a reservoir of wealth and social status for their family owners. Family-owned businesses demonstrate relatively conservative strategic decision making that aspires long-term wealth preservation and enhancement. For family owners, investments in information technology (IT) raise a predicament as they are risky, yet a long-term imperative. We propose three hypotheses that build upon the thesis that family owners combine a deep understanding of the business with a strong influence on stakeholders within and beyond the firm’s boundaries to exert strategic control in the extended enterprise. First, family ownership negatively influences IT investment, because family owners are likely to avoid investments in IT that are frivolous, reduce information asymmetry, or leave auditable digital trails. Second, the negative influence of family ownership on IT investment is weakened when a career professional is appointed in the senior-most executive position of a family-owned business. This is because professional executives strive to utilize IT for control and performance benefits, and family owners desire to use IT to monitor and control the non-family professional executive. Third, family ownership weakens the negative influence of environmental hostility on the relationship between IT investment and firm performance, as family-owned businesses incur less dynamic adjustment costs and maintain better alignment between IT and business strategy. Empirical analysis, consisting of panel regression estimations, on archival data of publicly listed Indian firms in the years 2006 to 2018 provides support for our theory that highlights how IT for control acts as a noneconomic motivation for the strategic IT behavior of firms. In doing so, we bring family ownership into the theoretical foreground for future IS scholarship. We contribute to theory and practice by advancing the nature of ownership and executive management as sources of heterogeneity in IT investment and its business value.

Industrial strategy in a transforming capitalism

Abstract Monopoly capitalism stressed the inevitable tendency of monopolisation of economies based on market capitalism, due to the strategic behaviour of firms aiming at reducing competition and preventing entry. The growth of Big Tech in the last decades just confirms this result. However, the digital economy and the development of online platforms reflect deep economic transformations, whereby the nature of competition in markets considerably changes. This paper shows that Cowling’s insights are not undermined as a result, rather the contrary. In particular, we suggest that industrial strategy in the digital economy could be usefully focused on economic governance, as suggested by Cowling. The new regulatory paradigm proposed in the EU with the Digital Markets Act (DMA) seems to follow this suggestion.

The differential Effects of CEO Personality on Strategic Conformity

A growing literature shows that CEO personality influences firm strategy. While this work has provided important evidence that differences in CEO personality explain observed strategy differences among firms, the literature has largely overlooked the five factor model (FFM) and its influence on strategic conformity behavior of firms. This is an important omission given that personality research has shown that the FFM is a comprehensive and core measure of individual personality; and given that research on inter-organizational imitation has largely overlooked the influence of the characteristics of the decision-makers for imitation behavior. To fill this gap, this article examines the influence of the FFM of CEOs—a well-established and comprehensive model of personality—on strategic conformity of publicly traded U.S. firms over multiple years. The results show that the personality traits of CEOs are related with less conformist strategies (openness, agreeableness) and more conformist strategies (conscientiousness, extraversion, neuroticism). I derive avenues for future research and practical implications of the findings.

Competitive advantage in algorithmic trading: a behavioral innovation economics approach

PurposeThis paper investigates the strategic behavior of algorithmic trading firms from an innovation economics perspective. The authors seek to uncover the sources of competitive advantage these firms develop to make markets inefficient for them and enable their survival.Design/methodology/approachFirst, the authors review expected capability, a quantitative behavioral model of the sustainable, or reliable, profits that lead to survival. Second, they present qualitative data gathered from semi-structured interviews with industry professionals as well as from the academic and industry literatures. They categorize this data into first-order concepts and themes of opportunity-, advantage- and meta-seeking behaviors. Associating the observed sources of competitive advantages with the components of the expected capability model allows us to describe the economic rationale these firms have for developing those sources and explain how they survive.FindingsThe data reveals ten sources of competitive advantages, which the authors label according to known ones in the strategic management literature. We find that, due to the dynamically complex environments and their bounded resources, these firms seek heuristic compromise among these ten, which leads to satisficing. Their application of innovation methodology that prescribes iterative ex post hypothesis testing appears to quell internal conflict among groups and promote organizational survival. The authors believe their results shed light on the behavior and motivations of algorithmic market actors, but also of innovative firms more generally.Originality/valueBased upon their review of the literature, this is the first paper to provide such a complete explanation of the strategic behavior of algorithmic trading firms.

The cost of corrupt lobbying and the role of institutional correction for bystander firms

This research combines legitimacy theory with expectancy violation to argue that when salient wrongdoing outside a firm is associated with a strategic behavior of bystander firms, the stakeholders show a negative reaction to those firms as this strategic action lost legitimacy and failed to meet the stakeholders’ expectancy for conformation to social norms and laws. Moreover, within-category variation in the engagement of suspicious strategic behavior is associated with the bystander firms’ level of culpability. We also show that correction by a trustworthy third party, such as the government, enables bystander firms tainted by the focal wrongdoing to restore their legitimacy by ensuring that their future activities will meet the stakeholders’ expectancy. Using the most notorious corrupt lobbying case in United States history and the related legislation that followed, we show that the more bystander firms lobby, the more these firms are penalized by stakeholders at the time of any focal corrupt lobbying disclosure. This penalty intensifies when these firms hire more lobbyists with close connections to politicians and government officers, thus using revolving-door lobbyists. However, when new laws requiring higher transparency are stipulated, those bystander firms that lobbied the most and were penalized the most recover their value most.

Competitive Analysis of Contracts with Mixed Bundling in Oligopoly Markets

By packaging different kinds of products, firms always use mixed bundling to gain competitive advantages. In traditional markets, single-product firms mainly bundle products through merging its complementary firms. As antitrust authorities pay more attention to mergers, some firms are turning to engage in mixed bundling by contracts. For example, mobile phone firms and telecom service providers offer contract plans and prepaid plans with mobile phone, which are essentially mixed bundling. With the development of information technology, more and more internet enterprises have begun to implement the“mixed bundling contracts”. In this context, the“Anti-Monopoly Guide on Platform Economy”issued by the State Council of China has made it clear that platforms may adopt bundling and restrict market competition, which has been emphasized as“enhancing antitrust and prevent capital sprawl”in the 14th-Five-Year Plan of China. Thus, it is of great significance to analyze the motivation of manufacturers to implement mixed bundling contracts and its influence on the market competition for a better business environment and the improvement of anti-monopoly policy.Based on the research of Choi（2008）and Armstrong and Vickers（2010）, this paper constructs a dynamic game model to study the competition problem of oligarchic firms that produce complete complementary products by signing the“mixed bundling contracts”strategy, which is common in the real telecom market, computer hardware and software market and other service markets. The results show that: In the case of one-sided bundling contracts, contract firms will gain competitive advantages by increasing the bundling price and reducing the component price through mixed bundling contracts, while its competitors are forced to lower their prices and fallen into a competitive disadvantage. In the case of two-sided bundling contracts, firms’ profit decreases though the bundling price decreases and the component price increases, but consumer surplus still increases and the total social welfare decreases. Finally, all of the firms choose to sign contracts with mixed bundling and fall into the“Prisoners’ Dilemma”. Thus, competition policy should be opposed to the strategic behavior of firms negotiating and signing contracts with mixed bundling.The innovation of this paper lies in that: It develops a unified analytical framework based on Choi（2008）and Armstrong and Vickers（2010）, which extends and deepens existing studies. In particular, due to the interactive influence of the“vertical externality”of complementary products and the“horizontal externality”of competition, the results are different with previous studies. It also explains the competitive strategy of firms and the mechanism of bundling through mixed bundling contracts, providing a new perspective for understanding the bundling motivation. The research of this paper has important application value in reality. For example, in the telecom market, we observe that some telecom operators negotiate with mobile phone firms to sign contracts with mixed bundling to compete with their rivals. Based on the conclusion of this paper and the implementation status of anti-monopoly policy in China, policy suggestions are summarized as follows: （1）When antitrust authorities evaluate the effect of bundling competition, the product characteristics and market competition status should be considered.（2）Antitrust authorities should understand the motivation of bundling and evaluate the long-term welfare effect of mixed bundling contracts.（3）It is suggested to introduce third-party evaluation to build a multi-level governance model of mixed bundling contracts.

Spatial competition on 2-dimensional markets and networks when consumers don’t always go to the closest firm

We investigate the strategic behavior of firms in a Hotelling spatial setting. The innovation is to combine two important features that are ubiquitous in real markets: (1) the location space is two-dimensional, often with physical restrictions on where firms can locate; (2) consumers with some probability shop at firms other than the nearest. We characterise convergent Nash equilibria (CNE), in which all firms cluster at one point, for several alternative markets. In the benchmark case of a square convex market, we provide a new direct geometric proof of a result by Cox (Am J Political Sci 31:82–108, 1987) that CNE can arise in a sufficiently central part of the market. The convexity of the square space is of restricted realism, however, and we proceed to investigate grids, which more faithfully represent a stylised city’s streets. We characterise CNE, which exhibit several new phenomena. CNE in more central locations tend to be easier to support, echoing the unrestricted square case. However, CNE on the interior of edges differ substantially from CNE at nodes and follow quite surprising patterns. Our results also highlight the role of positive masses of indifferent consumers, which arise naturally in a network setting. In most previous models, in contrast, such masses cannot exist or are assumed away as unrealistic.

Tourist destinations and cooperative agreements between airlines

The important links that are formed between tourist destinations and the airline industry are evident in the previous literature. These links are active in both directions. The characteristics and the policies of tourist destinations can affect such relevant aspects as the organization of airline route networks, the inauguration of new routes and their expansion. In this study, it is proposed that the value of a tourist destination and the inclusion of airports close to the tourist destination on the routes of an airline are also related to whether that airline decides to plan its route networks with its own resources or to complement those resources with assistance from other partner airlines through cooperative alliances, specifically code-share agreements. Taking into account the assumptions of the Resource-Based and the Relational views, the value of a tourist destination can be a relevant factor in the cooperative behaviour of airlines. Moreover, the routes within which the most valuable tourist destinations are embedded can be of different types. It is therefore of interest to know whether the type of route plays a relevant role in the preference for cooperative behaviour among the routes that include tourist destinations. Around 50,000 routes and the most important global tourist destinations were considered to analyse this behaviour. The results showed that the airlines under study preferred to operate the routes that included valuable tourist destinations with their own resources, although this behaviour was more variable when differentiating between types of routes. • Tourist destination value influences the strategic behaviour of airline firms. • Airline firms will tend not to cooperate on routes with top tourist destinations. • The type of route influences the cooperative behaviour of Airline firms. • Scarce resources prompt cooperation on international routes to top destinations. • Airlines prefer to cooperate on routes with no hubs but with top tourist destinations.

ДЕТЕРМІНАНТИ ВЕКТОРУ ВПЛИВУ ЦІНОВОЇ ДИСКРИМІНАЦІЇ НА СУСПІЛЬНИЙ ДОБРОБУТ

The article considers the nature of price discrimination, defined by different researchers. It mainly relates to strategic behaviour of firms that sell the same product to different consumers at different prices. On the one hand, it leads to redistribution of consumer surplus to producer that reduces a public welfare, being a negative consequence of price discrimination. On another hand, the price discrimination provides access of low-income people to a product. It is the way for them to buy it at a reduced price, and this is a positive consequence of price discrimination on public welfare. The article depicts positive effects of price discrimination with examples of banking (deposit rates), cosmetics (season tickets) and education markets (tuition fee). These markets are distinguish by dispersed structure that is favoured for competition. Negative effects in the article are depicted with example of glucose syrup market, marked with a dominance. These examples, as well as the results of theoretical research, witness that a market structure is one of the determinants of a vector of price discrimination influence on public welfare. Another determinant (behavioural) is defined by Pike – Shastitko criteria, among which are: exploitation of a dominance, distorting of competition on the downstream markets (leverage of dominance), and reducing of the potential competition. Considering of the above-mentioned structural and behavioural determinants of the vector of price discrimination influence on public welfare asks for relevant legal reflection within the system of state regulation of price discrimination. The authors analyse the current Ukrainian legal framework of price discrimination regulation, highlighting the gaps which are still exist, determining mostly negative effects of price discrimination influence on the public welfare of Ukrainians. They develop the recommendation of how to do balance its negative and positive effects through change of legislation, in particular, the introduction of certain requirements for exemption from competition law, starting from the foreign, mainly American, experience.

Spatial Differentiation of Variegated Capitalisms: A Comparative Analysis of Russian and Australian Oil and Gas Corporate City Networks

The globalization of firms is shaped at multiple scales by interdependencies and connections between places. The degree to which firm strategic behavior is global depends on capitalist variegation that reflects national particularity and path dependence linked to underlying global industry restructuring. This article develops an analytical framework for studying spatial differentiation of sectoral modes of variegated capitalism by applying a world city networks (WCN) approach to a highly globalized economic sector. It applies social network analysis to 24,299 intrafirm ties of 2,121 oil and gas firms in Russia and Australia linking 1,339 cities. An analysis of national networks, as they were in 2019, showed an introverted and centralized city network structure in Russia. Ties to domestic production centers and strategic geopolitical partners were strongly focused on Moscow, reflecting Russia’s state capitalism and the Soviet legacy of the state-led planning. In contrast, the liberal market orientation of Australia showed an extroverted and decentralized network, with strong links between Perth, Sydney, Melbourne, Brisbane, Adelaide and international energy hubs, global cities, and tax havens. We conclude that studying sectoral city network structures provides a more nuanced appreciation of economic processes as artifacts of embedded politico-territorial relations as they reflect the underlying role of the state affecting the strategic behavior of firms, essentially profiling sectoral modes of variegated capitalisms. This article seeks to enhance engagement by economic geographers with WCN research, by providing a novel comparative framework for capturing and interpreting uneven (variegated) spatial outcomes of diverse political–institutional contexts vis-à-vis specialized economic activity. By establishing a dialogue with variegated capitalisms literature, we extend the ongoing debates over how politico-territorial and sectoral relations contribute to city networks formation.