Firms` Strategic Decisions: Theoretical and Empirical Findings

This chapter examines the two-part pricing problem of a risk-neutral monopoly (the seller) for a good sold to buyers who face uncertainty about their demand for the good. If buyers are risk neutral, we show that marginal-cost pricing is not only profit-maximizing but also socially efficient. If buyers are risk averse, the demand uncertainty calls for the insurance need of buyers, which induces the seller to deviate from marginal-cost pricing. We show that the optimal unit price is higher or lower than the constant marginal cost, depending on the nature of the goods (normal or inferior) and on the signs of cross-derivatives of buyers’ multivariate utility function. Employing a quasi-linear specification that reduces the general multivariate utility function to a special univariate utility function, we show that the seller optimally raises (lowers) the unit price and lowers (raises) the fixed fee from their risk-neutral counterparts if buyers’ total and marginal benefits are positively (negatively) correlated. We further show that these results are robust to the introduction of competition to the seller.

There is a vast literature on non-cooperative oligopoly games. In this literature, however, the discount rates have been considered as fixed. Consequently, this chapter aims at understanding the effects of uncertainty over future discount rates on collusive behavior. Results indicate that the more uncertain the future discount rates are, the more collusive firms become. A higher average discount rate, on the other hand, is anti-collusive. With this kind of information at hand, policies that are targeted at reducing the variability in interest rates can promote competitive behavior by discouraging firms to behave collusively. Thus, the results can be of use for competition authorities and governmental bodies.

This chapter addresses firms’ strategic decisions on Corporate Social Responsibility (CSR), focusing on the role of market structure and firm size as drivers of CSR. Do large firms invest more in CSR? Do firms in more concentrated markets invest more in CSR? A simple theoretical model with product and CSR competition is presented. We find that more competition increases CSR investment and that firm size also positively influences firms’ social responsibility. Size and market concentration thus contribute in different directions to CSR, which contradicts the usually presumed positive association between these variables.

We characterise the socially optimal mix of firms in a duopoly with both profit-seeking and labour-managed firms. Firms’ activities generate a twofold externality: (i) production entails the exploitation of a common pool natural resource and (ii) production/consumption pollutes the environment. We show that it is always preferable to have at least one labour-managed firm in the industry, in view of its softer impact on environmental magnitudes. Moreover, if market size is large enough, a mixed duopoly is indeed the socially efficient industry configuration.

This chapter examines a two-stage game model of duopoly between a labormanaged firm and a joint-stock firm. The following situation is considered. In stage one, each firm independently decides whether or not to offer lifetime employment. In stage two, each firm independently chooses its actual output. The chapter shows that only the labor-managed firm offers lifetime employment and at equilibrium both firms are more profitable than in the simultaneous quantity-setting game without lifetime employment.

This chapter examines a market comprising a labour-managed firm, a capitalist firm and a state-owned firm. The following situation is considered. In stage one, the capitalist firm and the labour-managed firm are allowed to install capacity. In stage two, the state-owned firm is allowed to install capacity. None of the firms can reduce or dispose of capacity. In stage three, the firms simultaneously and independently choose output. The chapter demonstrates that there is a subgame perfect equilibrium in which only the labour-managed firm installs excess capacity as a strategic device.

We consider strategic trade and privatization policies in international bilateral mixed markets where a domestic state-owned enterprise competes with both domestic and foreign private enterprises in each country. We examine the strategic interaction of two countries’ optimal choices of privatization and trade policies with different combinations of production subsidy and import tariff, and find some interesting policy implications. First, a higher social welfare can be achieved with the appropriate degree of privatization when both governments adopt a production subsidy only. Second, FTA can work as a coordination device to solve the prisoner’s dilemma problem. Third, the maximum-revenue privatization, combined with zero subsidy and higher tariff, is higher than optimum-welfare privatization. Finally, the international bilateral equilibrium needs less degree of privatization and lower subsidy rate, even though it is jointly suboptimal from the viewpoint of global welfare.

Will the order of public firm’s moves affect the social efficiency of free entry in a mixed oligopoly market? In this chapter, we first show that in a closed economy, private entry is socially excessive regardless of the firm’s order of move. We then show that in an open economy, socially excessive of domestic private entry remains hold regardless of the firm’s order of move if the trade cost of foreign competitors is higher enough to deter foreign entry. Our excessive entry results found in the presence of public firm and market leaders have important implications for anti-competitive regulation policy and policy coordination between domestic and foreign governments.

This chapter investigates a mixed duopoly market in which a state-owned public firm competes on price against a foreign private firm. Each firm decides whether or not to hire a manager. The chapter demonstrates that there is a subgame perfect Nash equilibrium in which only the foreign private firm hires a manager. This is in contrast with the case in which the state-owned firm competes against a domestic private firm, where both firms hire managers.

Critical Infrastructure (CIN) is an important element of the modern world: Every nation must defend the crucial government, transportation, financial, energy, information, and other critical infrastructure systems against terrorist attacks and earthy cataclysms. Information security occupies a special place in the list of human priorities. The chapter examines the conundrums of avoidance of possible Internet-based crimes (cyber crimes) against Critical Infrastructures (CINs). One of the primary objectives of this chapter is to prove the relevance of the problem, as well as describe the probable phenomena and movements that could form a topic for further discussions and considerations in this area. The chapter’s main issue is highly vital due to the extreme dependability of financial bodies in the modern world that help accelerate the globalization processes involving the economies of all countries.

Using the Data Envelopment Analysis (DEA) and Malmquist index, this chapter analyzes how the Uruguay Round’s resolution on Agreement on Agriculture (AoA), which is a strategic decision making at the global level, has contributed to the strategic decision making in Asian agriculture at the national level. The empirical results reveal that the strategic decision making of trade liberalization at the national level has significantly contributed to growth in productivity and efficiency measures in Asian agriculture during the period of 1981 to 2012. As like the Kuznets hypothesis, an interesting inverted U-shaped movement of technical efficiency levels with trade liberalization is observed, while the movement of technological change on trade openness comes as U-shaped.

Today, there is extreme enthusiasm among practitioners and academic researchers for green management. This enthusiasm is driven by the expectation that managers will utilise resources wisely and responsibly by making minimum use of air, water, minerals, and other materials. The public is eager to preserve nature’s beauty, calm and tranquillity. It encourages organisations to eradicate toxins in the workplace that harm the employees and community. Green management has certain significance at the normative or moral scale. The relationships between an employee’s green behaviour, green human resource management, and environmental sustainability with social, economic, and environmental performance need to be explored and well-understood. A self-administered questionnaire was distributed to collect sample data using convenience sampling. The reliability of the instrument was determined based on Cronbach’s Alpha. The normality of data was checked through the Shapiro-Wilk Test. Normality plot was used to find outliers in the collected data. The hypothesis was analysed using Andrew Hayes’s methodology of moderation in the statistical package for social sciences (SPSS). The results confirm the significant moderating impact of green human resource management on the association of employees’ green behaviours and environmental sustainability. Organisations around the world are shifting from processes that exploit the environment towards those that are environmentally friendly. Going forward, researchers predict that more research will illuminate the role of green human resource management (HRM) activities in enhancing and perhaps even driving environmental management initiatives. Such research reduces organisational degradation and contributes to the benefits of all stakeholders in the future.

This chapter is an attempt to empirically examine the relationship between firm’s size and export-intensities of manufacturing firms in India in a discriminating oligopoly model. The model predicts that in such a model, where the firm behaves like a price taker in the world market and the domestic market is protected by prohibitive tariffs, lower cost firms tend to produce more outputs and therefore export proportionately more outputs. Using the unit level factory level data for the Indian economy for the year of 2009 from the Annual Survey of Industries, we test the propositions (1) firm level output and the marginal cost of the firm and (2) export share of the firm and the firm size being measured in terms of the fixed capital assets held by the firm. We further examine if transport advantage in terms of costal location of the firms has any impact on the firm export.

This chapter investigates how industrial economics modeling can be particularly useful to analyze development issues in a context of food safety regulations. The chapter shows how such a modeling is necessary to understand, in such a context, the evolution of vertical relations in the South supply chains, the mechanism of price formation in less-developed economies subject to food safety constraints, the evolution of supply (quantitatively and qualitatively), food risk, etc. To answer the specific economic development issue associated with such a context, the chapter shows that it is necessary to revisit and rework the usual theoretical frameworks of industrial economics to take account of the multitude of actors in the supply chains, the multitude of typologies of marketing channels and the resulting strategic interactions.