Theories of the Firm. Demetri Kantarelis. Third Edition

Transcription

1 Theories of the Firm Third Edition Demetri Kantarelis Publisher's website: ISBN (Print): ISBN (Online): *-X Copyright 2010 Inderscience Enterprises Ltd No part of this publication may be reproduced stored or transmitted in any material form or by any means (including electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of the publisher, except in accordance with the provisions of the Copyright Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd or the Copyright Clearance Center Inc. Published and typeset in the UK by Inderscience Enterprises Ltd.

2 CONTENTS Chapter 1: The business environment in the first quarter of the 21st century 1 1 Globalisation Legal restrictions Global concentration Excess capacity Insourcing and urbanisation in developing economies Development views: 'romantic', 'parasite' and 'dual economy' 10 2 The increasing relevance of auctions Bidders (or buyers) Auctioneers (or sellers) Risk preference Information structure Other actions Ethical issues 17 3 Ethical constraints Teleological ethics Deontological ethics Virtue ethics System development ethics Ethics theories as foundations of other theories that affect business Summary 26 Chapter 2: The firm as a decision-maker 28 1 Rationality 30 2 Satisficing 34 3 Additional factors that affect decisions Economic decisions and cost/benefit analysis Groups Variety of evaluative frameworks Bayesian decision-making 38 4 Fairness, gaming and risk preference The risk-averse firm The risk-loving firm 41 5 Uncertainty 42 6 Behavioural decisions 44 7 Summary 46

3 Chapter 3: The neoclassical theory of the firm 48 1 The skeletal features of the neoclassical monopoly firm and the principle of profit maximisation 48 2 A formal model of the neoclassical theory of the monopoly firm: 53 3 The firm in various market structures Competitive advantage, market segmentation, contestability and relevant competitors The perfectly competitive firm The perfectly competitive firm in the short-run The perfectly competitive firm in the long-run The monopolistically competitive firm Monopolistic competition in the short-run Monopolistic competition in the long-run The Hotelling-type (spatially differentiated) firm The spatial firm The spatially differentiated industry in the short-run Entry and the industry in the long-run Efficient distance Intra-industry trade theory Industry structure Two industries and two countries 77 4 Summary 79 Chapter 4: The strategic firm 80 1 Kinked-demand mentality 80 2 Reversed-kinked-demand mentality 81 3 Dominant strategy 81 4 Nash equilibrium 82 5 Cartel solution 82 6 Games with mixed strategies 86 7 Incomplete information games Pure-strategy Bayes-Nash equilibria Mixed-strategy Bayes-Nash equilibria 91 8 Evolutionary games < 93 9 The Cournot model N-firm Cournot model..., Industry concentration measures Cournot duopolists Stackelberg duopolists Live and let live philosophy : Stochastic duopoly A case for more competition and higher prices Entry deterrence The Sylos-Labini postulate The Dixit model of entry deterrence Summary 110

4 Chapter 5: The price-discriminating firm and the regulated firm The price-discriminating firm Two-part tariff First-degree price discrimination Second-degree price discrimination Third-degree price discrimination The regulated firm Natural monopoly Natural monopoly and subaddivity Regulation Ramsey prices Peak-load pricing and capacity-based subsidy Rate-of-return constraint regulation Regulators' motives Alternatives to regulation Safety Environment Internalisation of costs, liability and negligence FDA and product screening regulation Summary 150 Chapter 6: The money-managing firm The capital asset pricing model The impact of a risk-free asset and the Sharpe ratio The relationship between a security's risk and its expected rate of return Summary 161 Chapter 7: The transaction cost theory of the firm Model I: the firm according to Coase The answer to question (a) The answer to question (b) Model II: the firm as a minimiser of transaction costs subject to a given output level Critical dimensions of transacting Bounded rationality Opportunism Model II: modified Model III: the firm according to Williamson Model IV: vertical integration and asset ownership The firm as a function of deals Factors that govern the effectiveness and efficiency of deals Strategic nucleus Mergers 184

5 7.3.1 The vertically integrated firm The horizontally integrated firm Conglomerate mergers Strategic alliances and joint ventures Summary ; 195 Chapter 8: The principal-agent theory of the firm The principal-agent problem Private information, opportunism and remedies Mechanism design and incentives' engineering Coordination Mechanism 1: split-the-difference plan Coordination Mechanism 2: symmetric mediation plan The conflict between the principal and the agent Divergence of interests: Model Divergence of interests: Model II Incentive compatibility The profit share (or bonus) incentive Risk-sharing between owner and manager The firm without employees The firm with a monitored employee The leisure model Partnership Non-opportunistic Opportunistic 'Team' and the minimisation of free riding A theory of the banking firm Loan limits and moral hazard Equilibrium Heterogeneous clients and adverse selection Theory versus reality The recent financial crisis Microfinancing Microfinancing and adverse selection Group-lending and the mitigation of adverse selection problems Group-lending and the mitigation of moral hazard Summary 236 Chapter 9: The evolutionary theory of the firm Introduction Creative destruction The essence of Schumpeter Styles of entrepreneurship Entrepreneurial capitalism Habitat for entrepreneurs The architecture of the US entrepreneurial economy 249

6 8 Market structure and innovation Schumpeter's assertion Process invention Patents, copyrights and trademarks Strategy and firm structure Summary 266 Appendix I: The evolution of industrial concentration due to luck: an extension Introduction Gibrat'sLaw The Gibrat process with periods of decline The effect of a decline The effect of fluctuations Examples Prais-type experiments Scherer-type experiments Conclusions 274 Appendix II: Buyer concentration and countervailing power Introduction Measuring buyer concentration Correlation between buyer and seller concentration Summary and conclusions 284 Appendix III: Buyers, sellers, and price cost margins in manufacturing industries Sample selection Links between buyer and seller power and PCM Herfindahl measures Concentration ratio measures Summary and conclusions 293 Appendix IV: Live and let live type behaviour in a multi-market setting with demand fluctuations Introduction The live and let live philosophy Live and let live behaviour in a two-market duopoly model Results of computer simulations Comparison with other oligopoly models Crippled optimisation Multiple goal decision-making Concluding comments 304

7 Appendix V: Stochastic duopoly and learning to cooperate Introduction A stochastic duopoly game Learning A numerical example Summary and conclusions 311 APPENDIX VI: Captive and common markets without price discrimination Introduction Literature review The model's theoretical environment The model Summary and conclusions 319 Appendix VII: Pairing industries and firms for optimum portfolio performance Introduction Classification of publicly traded firms and industries Paired aggregate efficient frontiers (PAEFs) Empirics regarding the CAPM Summary and conclusions 332 Epilogue 335 Bibliography 339 Subject Index 347