Types Of Strategic Interactions Research Articles

An examination of the relation between strategic interaction among industry firms and firm performance

Abstract This paper examines the relation between the degree and type of strategic interaction among industry firms and firm performance. As a measure of firm performance, we use data envelopment analysis (DEA) to estimate the efficiency of a firm relative to the ‘best practice’ firms in its industry. We find that firms in industries with higher levels of strategic interaction are less efficient and the negative relation is more pronounced in industries where firms compete in strategic substitutes. This finding is consistent with the idea that there is significantly more cooperation (tacit collusion) under strategic complements than strategic substitutes. We also find that frontier efficiency methodology outperforms other measures of firm performance in explaining the relation between strategic interaction and firm performance.

PROFITABLE STRATEGIC DELEGATION WITH CONJECTURAL VARIATIONS

ABSTRACTFirms delegate strategic decisions to managers because they find it profitable to do so. In the product market, when agents make conjectures about the reaction of their rivals to marginal changes in their own strategies, the set of equilibriums can be enlarged with respect to the case of no conjectures. This paper takes a duopolistic linear market parameterization where firms selling differentiated products can delegate either price or output decisions to managers. We show that it is a dominant strategy for firms to delegate no matter whether firms are Cournot or Bertrand competitors, although the equilibrium is not necessarily efficient. Futhermore, in equilibrium Cournot competition is more profitable for firms than Bertrand competition. Finally, requiring consistency in conjectures yields the same outcome no matter what type of strategic interaction and managerial choice there is on the part of firms.

Self‐Protection, Strategic Interactions, and the Relative Endogeneity of Disease Risks

AbstractSelf‐protection is a key behavior that influences infectious disease risks. Spillovers in disease protection create different types of strategic interactions. Under certain conditions, multiple Nash equilibria may arise with the possibility of coordination failure involving excessively low self‐protection, in which case individuals’ expectations of others’ efforts determine which outcome arises. In prior studies, assumed technical relations between self‐protection and infection probabilities drove the strategic interactions. We demonstrate that strategic relations can be endogenously determined and depend on the relative endogeneity of risk (RER), defined here as the degree to which individuals can take control of their own risks in a strategic setting. The potential for coordination failure may arise when RER is sufficiently small, whereas larger levels of RER may eliminate this possibility to ensure larger levels of self‐protection. We find that imposing a behaviorally‐dependent indemnity may increase RER to eliminate the possibility of coordination failure. We apply our analysis to the problem of livestock disease and illustrate the theory using a numerical example of the 2001 United Kingdom foot‐and‐mouth disease epidemic.

Language friction and partner selection in cross-border R&D alliance formation

How does language friction affect alliance formation? Language friction is a form of cultural friction arising from structural differences in the respective languages used by potential partners to reason and solve problems together. A little language friction may prompt partners to rethink solutions, thereby enhancing collaboration, but excessive friction may impede collaboration. We develop a Language Friction Index (LFI) to quantify relative differences in linguistic structure for any language pair. Utilizing a unique data set of semiconductor design activities (1988–2001), our empirical analysis finds an inverted U-shaped relationship between partners’ LFI and the likelihood of cross-border research and development (RD (2) the effects of language friction are economically significant and strategically consequential; (3) certain aspects of language friction occur independent of language proficiency and persist despite the use of lingua franca to reduce language barriers; (4) linguistic diversity is an indirect marker of cognitive diversity, which is useful in boosting creativity, especially in first-time collaborations; (5) beyond R&D alliances, language friction may also influence other types of strategic interactions and organizational processes.

Strategic Interaction Among Overlapping Local Jurisdictions

Fiscal policies of state and local governments are determined in an environment of strategic interaction. The public economics literature has classified several features of these interactions that describe how governments' taxation and expenditure policies are interrelated. One form of strategic interaction that has received little attention occurs between different types of local governments that have overlapping boundaries. These entities share either part or all of their tax bases with each other and therefore are jointly constrained by voters' willingness to be taxed on that base. This paper explores the strategic interactions between counties and school districts by testing for reactions to how the property tax is used in overlapping jurisdictions. I implement GMM Instrumental Variables model that utilizes county non-salary benefits and general obligation debt expenditures to identify the county property tax levy, the impact of county property taxes on school district property levies is then estimated in a second stage regression. The results reveal a positive cross-tier tax elasticity indicating a yardstick type of strategic interaction among overlapping local jurisdictions.

Arab Revolutions of 2011 : An Explanatory Model

This paper provides a theoretical framework and elements of a causal model to explain the Arab revolutions occurred in 2011(1). The main thesis of the model is that Arab regimes’ policies- in terms of their inherent nature, structure, and outcomes- created a certain individual and collective psychological makeup which, in turn, has transformed the rational calculating modalities for both individuals and groups. Essentially, there are patterns of ordering preferences and types of strategic interactions, both individually and collectively. The aforementioned components of the thesis are elaborated as follows: The regimes’ policies and their outcomes represent the macro-level of analysis, the individual rational calculations and corresponding decisions pertain to the micro-level, and the impact of the psychological makeup on calculations and preferences provides for the bridge between the two modes of analysis, the link being the notion of dignity. Drawing from diverse sources and theories, the model attempts to bring the notion of dignity into political science analysis, claiming that it is the only proper explanatory link between the rigidity of structuralism and the justification of agency.

Wildfire Risk Management in a Landscape with Fragmented Ownership and Spatial Interactions

This article examines how the spatial configuration of forest ownership influences risk-mitigating behavior of public and private forestland owners over time. We use a game theoretic framework to examine how the public landowner’s investment in fuel management influences, and is influenced by, decisions made by private forestland owners. We find that spatial configuration and location affect the timing and amount of fuel treatment on the landscape. There is less investment in fuel management on landscapes characterized by fragmented ownerships. We also find that the type of strategic interaction between landowners depends critically on the shape of the wildfire damage function. <i>(JEL Q23, Q24)</i>

Network Design in Games with Spillovers

How should an organization be designed in order to provide its members with minimal incentives to defect? And how does the optimal design depend on the type of strategic interaction between defectors and remaining organizational members? This paper addresses such issues in a game theoretic model of cooperation, in which an organization is formally represented by a connected network, and where gains from cooperation are given by a partition function. We show that critical structural features of the organization depend in a clear-cut way on the sign of spillovers. In particular, positive spillovers favor the adoption of dispersed and centralized forms, while negative spillovers favor cohesive and horizontal ones. Moreover, if the organizational form determines all the communication possibilities of members, a highly centralized organization - the star - emerges under positive spillovers, whereas two horizontal architectures - the circle and the complete - emerge under negative spillovers.

Network design in games with spillovers

How should an organization be designed in order to provide its members with minimal incentives to defect? And how does the optimal design depend on the type of strategic interaction between defectors and remaining organizational members? This paper addresses such issues in a game theoretic model of cooperation, in which an organization is formally represented by a connected network, and where gains from cooperation are given by a partition function. We show that critical structural features of the organization depend in a clear-cut way on the sign of spillovers. In particular, positive spillovers favor the adoption of dispersed and centralized forms, while negative spillovers favor cohesive and horizontal ones. Moreover, if the organizational form determines all the communication possibilities of members, a highly centralized organization—the star—emerges under positive spillovers, whereas two horizontal architectures—the circle and the complete—emerge under negative spillovers.

Modeling endogenous learning and imperfect competition effects in climate change economics

In this two-part paper we evaluate the effect of “endogenizing” technological learning and strategic behavior of agents in economic models used to assess climate change policies. In the first part we show the potential impact of R&D policies or demonstration and deployment (D&D) programs in the context of stringent stabilization scenarios. In the second part we show how game-theoretic methods can be implemented in climate change economic models to take into account three types of strategic interactions: (i) the market power of the countries benefiting from very low abatement costs on international markets for CO2 emissions, (ii) the strategic behavior of governments in the domestic allocation of CO2 emissions quotas, and (iii) the non-cooperative behavior of countries and regions in the burden sharing of CO2 concentration stabilization. The two topics of endogenous learning and game-theoretic approach to economic modeling are two manifestations of the need to take into account the strategic behavior of agents in the evaluation of climate change policies. In the first case an R&D policy or a demonstration and deployment (D&D) program are put in place in order to attain a cost reduction through the learning effect; in the second case the agents (countries) reply optimally to the actions decided by the other agents by exploiting their strategic advantages. Simulations based on integrated assessment models illustrate the approaches. These studies have been conducted under the Swiss NCCR-Climate program.

Marketing objectives of retailers with differentiated goods: An evolutionary perspective

In the real world, revenue maximization behavior may prevail in various markets. To understand this phenomenon, we develop a two-population model with two-vertically integrated channels. Every channel consists of one manufacturer and many (a sufficiently large number of) retailers that sell products in different markets by adopting pure marketing objective strategies: profit maximization and revenue maximization. We study the marketing objective behaviors in the quantity-setting duopoly and the price-setting duopoly situations respectively from an indirect evolutionary point of view. In the quantity-setting duopoly situation, we find that whether the equilibrium is an evolutionarily stable strategy depends on the type of strategic interaction (substitutes or complements), relative unit cost, market scale, etc. We extend it to the case with continuous preferences. We argue that revenue maximization may be an evolutionarily stable strategy and profit maximization strategy may be unstable. Under proper conditions, revenue maximization behavior can coexist with profit maximization behavior. In the price-setting duopoly situation with linear demand functions, we find that profit maximization is always an evolutionarily stable strategy and revenue maximization behavior will gradually become extinct. The extended model has a similar result but the retailers may compromise the two pure strategies.

Location, governance, and strategic determinants of japanese manufacturing investment in the united states

AbstractA firm's decision to manufacture abroad depends on location, governance, and strategic factors. Governance factors are firm‐specific. In spite of this, most empirical studies of foreign direct investment (FDI) have been conducted at the industry level (making it impossible to look at firm‐specific determinants), and only a handful have considered governance, location, and strategic factors simultaneously. This paper is the first large sample study of the determinants of foreign direct investment at the product and firm‐level. It examines the impact of location and governance factors, and of four types of strategic interactions, on a Japanese firm's propensity to manufacture in the U.S. The results support the view that foreign direct investment is explained by location, governance, and strategic variables. Economies of scale and trade barriers encourage Japanese FDI in the U.S. The larger a Japanese firm's R &amp; D expenditures, the greater the probability it will manufacture in the U.S., but this is not the case for advertising expenditures. Some strategic factors are also important: Japanese firms with medium domestic market shares have the highest propensity to invest in the U.S. There is evidence of follow‐the‐leader behavior between firms of rival enterprise groups, but none of ‘exchange‐of‐threat’ between American and Japanese firms. Japanese investors are also attracted by concentrated and high‐growth U.S. industries.