This paper analyzes a model in which owners of competing firms can hire biased managers for strategic reasons. We show that independent of the mode of competition, that is, price or quantities, owners hire aggressive managers. This result contrasts with the classic literature on strategic delegation. Copyright © 2013 John Wiley & Sons, Ltd.

As the electric utility industry moves to Regional Transmission Organizations, there are more opportunities for merchant plants in selling wholesale energy to electric utilities. Two alternative bidding regimes are considered: (i) pay-as-bid and (ii) pay with market-clearing bid. With stochastic price-sensitive demand, we show that pay-as-bid has greater average price, but lower price variance than does market-clearing price. Copyright © 2013 John Wiley & Sons, Ltd.

Negative externalities have competitive relevance in a market when they have selective impacts – as, for example, when a product in use imposes greater costs on consumers of rival products than on other people. Because managers have discretion over aspects of product design that affect external costs, the externality in such cases may be viewed as a strategic variable. This paper presents evidence of the existence of competitively relevant negative externalities. I introduce a metric for the externality's competitive effect, the external cost elasticity of demand, which I estimate econometrically using data from the motor vehicle industry. Managerial implications are considered. Copyright © 2013 John Wiley & Sons, Ltd.

When mean growth rates decline across large size classes of firms, the differences can become too small to achieve statistical significance, creating an illusion of proportionate size-independent growth (Gibrat's law). Thus, a final confirmation of the law requires a lognormal size distribution with a secularly increasing variance (growing firm size inequality). An empirical test on the less-than-truckload trucking industry demonstrates the illusion. The growth rate mean and variance between the two largest classes are statistically indistinguishable, despite an actual decline in both. Their combined size distribution gives a poor fit to lognormal, however, so large-firm conformity to the law is rejected. Copyright © 2013 John Wiley & Sons, Ltd.

We test and cannot reject the hypothesis that retail pricing of natural gas is transparent for commercial and residential customers served by regulated local distribution companies in the United States. The periods of adjustment to a wholesale price change are 1.54 months for the commercial price and 1.69 months for the residential price. These findings support the view that regulated local distribution companies quickly adjust retail prices to fully capture any change in the wholesale natural gas price. Copyright © 2013 John Wiley & Sons, Ltd.

We examine strategic delegation in a multiproduct mixed duopoly with nonprofit organization (NPO) and for-profit organization (FPO). We will demonstrate that the nonprofitable mission service can reduce both the interest conflicts between the NPO and FPO owners and those between the NPO owner and self-benefited manager. The profit orientation in the compensation schemes will vary with different relative costs. Although the NPO owner may have a different objective from the FPO owner, they all end up having their managers raise their prices and reducing competition in the profitable market. Moreover, as the regulated price of mission service increases, both firms will charge more for their profitable services, but the owner of NPO could still overcompensate her or his manager, when the indirect impact on increasing the conflict of interest is higher than the direct impact on price. Copyright © 2013 John Wiley & Sons, Ltd.

Existing experimental studies tested the forward induction (FI) prediction, an equilibrium selection criterion, in a battle-of-the-sexes game and found limited support due to a confounding focal point. The focal point arises from an asymmetrically offered outside option in the first stage of the game. The robustness of FI to different first-stage asymmetries, however, is still unknown. To investigate this issue, the paper sheds light on the interplay of FI and (i) payoff asymmetries and (ii) endogenously generated asymmetries (in a game that is initially fully symmetric). The results from a laboratory experiment confirm the robustness and power of the FI prediction. Copyright © 2013 John Wiley & Sons, Ltd.

This paper uses a survey on wage formation applied to 1305 Colombian firms to study wage-setting decisions of newly hired employees. The survey indicates that wages of the newly hired are based mainly on a predefined wage structure. This may help to explain, in part, the presence of downward nominal wage rigidities in the Colombian formal labour market, since firms are unwilling to differentiate the pay of new hires from the wages of existing workers. Using multinomial logit models, we find that firm size and the share of temporary workers increase the relative risk of using a predefined internal structure over bargaining between employee and employer when setting the wages of the newly hired employees. Copyright © 2013 John Wiley & Sons, Ltd.

This paper presents the results of an experimental study on jump bidding in takeover auctions with entry costs. It provides support for signaling hypothesis behind jump bidding and analyzes how the size of the entry costs affects the bidders' behavior and their expected profits. It also shows that jump bidding allows the reallocation of the surplus from the seller to the first bidder but has little effect on the social surplus and the profits of the second bidder. Copyright © 2013 John Wiley & Sons, Ltd.

This study uses a unique data set of individual video game titles to estimate the effect of an exhaustive set of observable characteristics on the likelihood of a video game becoming a blockbuster title. Due to the long-tailed distribution of the sales data, both ordinary least squares and logistic regression models are estimated. The results consistently show that blockbuster video games are more likely to be released by one of the major publishers for popular hardware platforms. Results also show that games of higher quality are significantly more likely to sell a greater number of units than those of a lower quality. Copyright © 2013 John Wiley & Sons, Ltd.

Before the 1997 crisis, Korean firms destroyed shareholder value and chronically produced nonperforming loans for financial institutions. In particular, chaebol-affiliated and unionized firms did so, with lower profitability among the financially unsound firms. Chaebol and unions thus functioned as institutional devices whereby managers and workers undermined the interest of taxpayers as well as shareholders. After the crisis, firms no longer destroy shareholder value or produce nonperforming loans. Chaebol-affiliated and unionized firms have higher profitability among the financially unsound firms. Chaebol and unions have thus ceased to function as institutional devices whereby managers and workers undermine the interest of shareholders and taxpayers. Copyright © 2013 John Wiley & Sons, Ltd.

This article aims at investigating how quantitative and qualitative (indirect) network effects impact pricing and trading decisions on a Business-to-Business marketplace. Using an original data set collected on MFG.com, one of the most prominent B2B platforms in the U.S.A., we find that the market share of a marketplace depends on both the quantity and quality of suppliers, but that quality effects tend to substitute for quantity effects as the size of the marketplace increases. These results suggest that while the quantity of suppliers on board is crucial during the early stage of a marketplace, supplier quality matters much more in the mature stage. Copyright © 2013 John Wiley & Sons, Ltd.

We compare the impact of two different mixed contracts on agent efforts when production depends on agent efforts at their own tasks as well as at helping others. The first contract combines compensation based on team output with that of a tournament where the bonus award is based on a ranking of individual output. The second contract also combines team output compensation with that of tournament except that the bonus award is based upon a relative ranking of an index constructed of alternative performance measures. We show that the latter contract can lead to higher levels of welfares than the former one. We also show that if the weights are properly constructed, the alternative contract can prompt agents into choosing first-best levels of effort. Copyright © 2013 John Wiley & Sons, Ltd.

This paper investigates the impact of corporate ownership and control on the outcome of financial distress. It is argued that the likelihood of financial distress resulting in insolvency depends on whether firms have controllers, the type of controllers and their cash flow ownership. Using a sample of 484 UK firms, 81 of which filed for insolvency, we show that financially distressed firms with controllers are more likely to be insolvent than widely held firms, where the probability of insolvency is greater when controllers are family or financial institutions. However, the probability of insolvency reduces significantly as the controllers' cash flow ownership increases beyond 10%. Copyright © 2013 John Wiley & Sons, Ltd.

Sports differ according to the number of players, interdependencies among them, complexity of strategy, and other dimensions. For example, baseball has been described as ‘an individual game in which a team score is kept’. These differences suggest differences in the relative importance of managerial inputs: owners, general managers, and managers (or head coaches). Using panels over 1970–2011, I estimate performance production regressions for Major League Baseball and the National Football League that permit the relative importance of these managerial inputs to be assessed within and across sports while taking explicit account of the hierarchical structure of management levels. In addition, with predicted individual effects, I present rankings of best and worst managers, general managers, and owners. Copyright © 2013 John Wiley & Sons, Ltd.

This paper studies how alternative managerial delegation contracts in a duopoly product market interact with wage decisions taken by a central (industry-wide) union in the labor market. Interestingly, results prove to be more varied with respect to findings by the managerial delegation literature with exogenous production costs. Most notably, it is pointed out that, in equilibrium, both firm profitability and welfare outcomes can be superior under both sales delegation and relative profit delegation, depending on various factors such as the degree of product differentiation and the competition regime. Copyright © 2013 John Wiley & Sons, Ltd.

Policy debates suggest a future role for geologic carbon sequestration. As geologic sequestration (GS) evolves from enhanced oil recovery operations to an emissions-mitigation option, regulations must evolve to manage the risks of carbon dioxide (CO₂) migration. We develop an engineering-economic model to understand the key deployment pathways in this transition. Major results reveal that dedicated CO₂ storage in aquifers is associated with the greatest net revenues under only a limited number of scenarios. This finding suggests that regulators should anticipate GS operations in reservoirs that were not initially intended as GS operations and, therefore, may have higher leakage rates. Copyright © 2013 John Wiley & Sons, Ltd.

This paper discusses the incentives for innovation by a manager-led firm. In particular, it is investigated how remuneration practices influence the choice of a risky project. In the first place, a dynamic model with uncertainty is used to determine the optimal employment level with exogenous growth and risk. In the second part of the paper, growth and risk are explained by R&D expenditures. Optimal investment expenditures for R&D are derived for (i) the profit-maximizing firm and (ii) the managerial firm, where the manager receives a fixed salary as well as a variable share of profits. If risk neutrality is assumed, then no difference exists. However, if risk aversion is considered, the managerial firm will invest more into R&D than the owner-led company. Size-related salaries are an additional reason for higher expenditures of R&D by managers. Copyright © 2013 John Wiley & Sons, Ltd.

The paper researches the effects of the 2008 financial crisis on various measures of firm governance, including the impact on firm boundaries such as buyer–supplier relationship, capital structure, and employment effects. Using a unique data set of 1686 Eastern European firms, we examine how the crisis affected the financial and employment decisions of different industrial and service sector firms. As these firms faced a steep decline in sales and capacity utilization, as well as credit constrains, they were forced to make significant and far reaching changes in various aspects of their operations. We discuss the implications of these changes. Copyright © 2013 John Wiley & Sons, Ltd.

Previous studies have shown that regulated firms diversify for reasons that are different than for unregulated firms. We explore some of these differences by providing a theoretical model that starts by considering the firm–regulator relationship as an incomplete information issue, in which a regulated incumbent has knowledge that the regulator does not have, but the firm cannot convey hard information about this knowledge. The incumbent faces both market and nonmarket competition from a new entrant. In that context, we show that when the firm faces tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission to the regulator more credible. International expansion can thus be a way to solve domestic nonmarket issues in addition to being a catalyst for growth. Copyright © 2012 John Wiley & Sons, Ltd.

This paper addresses a puzzling problem: why do parties often choose to combine alternative modes of organizations simultaneously while dealing with identical or almost identical transactions? I propose a model to capture these so-called ‘plural forms’ and to explain the choice of such non-standard arrangements. Three determinants are identified as playing the major role: ambiguity surrounding the fitness of a mode of organization to the transaction at stake; complexity of a transaction or a set of transactions; and strategic behavior. Propositions are derived that are confronted to empirical data coming out of the agro-food industry. Copyright © 2012 John Wiley & Sons, Ltd.

Using the plural form helps franchised chains cope with the four ‘franchising imperatives’—system growth, chain uniformity, local responsiveness, and systemwide adaptation. Yet, despite the obvious importance of chain composition, empirical research on synergies in the plural form is largely absent, and insights on performance implications of the plural form are equally scarce. Consequently, with detailed data from 122 chains, this paper provides what is ostensibly the first in-depth examination of the prevalence and performance effects of synergies that franchisors actually achieve by using the plural form. The study concludes with managerial implications for governance design in franchised chains. Copyright © 2012 John Wiley & Sons, Ltd.

In this paper, we use organizational economics theories to explain the percentage of multi-unit franchisees within franchise chains. We use transaction cost theory, property rights view and agency theory to formulate three research hypotheses that are related to franchisees' transaction-specific investments, intangibility of system-specific assets and risk of franchisee free-riding, respectively. These hypotheses are tested in the French franchising context by using a sample of 138 franchisors. The empirical results are largely supportive of the hypotheses. We extend the franchising literature by arguing that the explanation of the franchisor's use of multi-unit franchising requires the combined application of different theoretical perspectives. Copyright © 2012 John Wiley & Sons, Ltd.

This study develops and tests an extended transaction cost model to explain the structure of decision rights in franchising. Results show that the inclusion of trust in the transaction cost model supplements the transaction cost explanation of the allocation of decision rights in franchising. On the basis of the data from the German franchise sector, we found that environmental uncertainty has a negative effect on the allocation of decision rights to franchisees because the franchisor exercises more control over local outlet decisions when the local market environment is highly uncertain. Contrary to the traditional transaction cost view, we found that behavioral uncertainty has a positive effect on the allocation of decision rights to franchisees. This result implies that franchisors are more likely to delegate decision rights to franchisees when they encounter difficulties in measuring franchisees' performance and controlling their behavior. Finally, trust has a moderating effect on the relationship between transaction cost variables and franchisor's propensity to delegate decision rights to franchisees. Copyright © 2013 John Wiley & Sons, Ltd.

This study investigates the performance of franchise networks through the lens of the resource-based and real options theory. First, according to the resource-based view, we argue that the intangible resources of the franchisor (system-specific know-how and brand name) and the intangible outlet-specific resources of the franchisees (exploration and exploitation capabilities) positively impact the performance of the franchise system. Second, on the basis of the real option perspective, we show that the franchisor's use of an explicit call option in the franchise contract—as a clause that gives him or her the right to acquire franchise units—increases the franchisor's managerial flexibility and incentives for intangible investments and hence improves the performance of the franchise network. We test the hypotheses with cross-sectional data from the franchise sector in Germany. The data provide some support of the hypotheses. Our study contributes to the franchise and interorganizational network literature as no prior study has applied the real option perspective to franchising. Copyright © 2013 John Wiley & Sons, Ltd.

To the best of our knowledge, no previous studies have examined the degree of vertical integration by comparing franchised and company-owned chains. On the basis of recent data from the French distribution networks in retail and services, this paper investigates the determinants of network integration in the French distribution systems. The level of network integration increases from franchised chains to company-owned chains. This paper provides evidence that the level of network integration is positively related to the brand name value and negatively related to the resource constraints and monitoring costs of the upstream firm. Copyright © 2012 John Wiley & Sons, Ltd.

While most economic organisation literature on cooperatives has focused on changes in income rights, we study changes in the allocation of decision rights between board of directors (representing members) and managers. The traditional role of the board is to direct the activities of the managers. However, professional management increasingly makes most strategic decisions, pushing the board into a supervisory role. We present two groups of findings on changing board–management relationships. We identify three corporate governance models: traditional, management and corporation. And we present an empirical illustration showing a relationship between the choice of board model, and product portfolio and performance. Copyright © 2012 John Wiley & Sons, Ltd.

This paper investigates whether long-tenured cooperative chief executive officers (CEOs) are successful in negotiating less monitoring, resulting in the cooperative being agent driven. Utilizing a sample of the 1000 largest US agricultural cooperatives, we examine whether boards of long-tenured CEOs exhibit differences in composition, formal committees, or procedures that may indicate these boards are more lenient monitors. We find long-tenured CEOs experience less board monitoring. This result is primarily due to a difference in procedural mechanisms, rather than board composition. However, it is unclear whether monitoring leniency is an indication of the CEO's ability to negotiate less monitoring. It remains a possibility that CEOs with shorter tenures also influence the board; but their recommendations may be heavily influenced by non-compulsory conformance with stricter corporate governance regulations. Copyright © 2013 John Wiley & Sons, Ltd.

Organizational economics points to the weaknesses of cooperatives in producing high-quality products compared with investor-owned firms (IOFs). In the Brazilian broiler industry, suppliers delivering to a cooperative are performing better on quality than suppliers to an IOF. Data was collected through a survey among suppliers of one cooperative and two IOFs. What could explain the cooperative's advantage in terms of suppliers' quality performance? Results show that there are important differences regarding relationship characteristics such as dependence, behavioral uncertainty, market risk reduction, and adaptation support, which could account for the higher quality products of the cooperative farmers. Copyright © 2012 John Wiley & Sons, Ltd.

This paper addresses the genesis of farmer cooperatives in China in terms of the actors. Empirical results from a multiple case study indicate that the genesis of cooperatives in China is due to entrepreneurial farmers and the government, rather than a bottom-up, collective action process of many small farmers. Copyright © 2013 John Wiley & Sons, Ltd.

This paper develops a model of a cooperative enterprise and compares it to a vertically separated market. In our model of a multi-stage production process, agents can acquire costly knowledge to decrease production costs. Our model shows that the cooperative acquires less non-generalizable knowledge than the market, but more generalizable knowledge if the large member in the cooperative receives a sufficiently large share of the cooperative's profits. Additionally, we derive that the cooperative generates larger aggregate surplus than the market if the influence of generalizable knowledge on production costs is large. Copyright © 2012 John Wiley & Sons, Ltd.

On the basis of the bootstrap-Data Envelopment Analysis (DEA), this paper estimates technical, scale, and pure technical efficiencies for the agricultural marketing cooperatives in China's Zhejiang Province and employs a single truncated bootstrap procedure to identify the key determinants of efficiencies. The empirical results suggest that pure technical inefficiency was the main source of the technical inefficiency. Factors having significantly positive impacts on efficiency of cooperatives are local economic development level, entrepreneurship of managers, and human capital of members. The size of financial leverage and the number of board members have a negative impact on pure technical efficiency. Copyright © 2013 John Wiley & Sons, Ltd.

Small and medium-sized enterprises (SMEs) face critical challenges in implementing collaborative strategies, including the difficulty of finding partners, the strain on managerial resources, and the risk of exploitation by larger partner firms. However, little is known about tendencies to network in SMEs. This paper builds on organizational economics and the resource-based perspectives. Survey data from 348 German SMEs reveal that predictions from both theories play a role for the tendencies of SMEs to network, yet organizational capabilities in terms of coordination and communication and bonding in alliances are most relevant for cooperation decisions. We provide managerial implications for cooperation involving SMEs. Copyright © 2012 John Wiley & Sons, Ltd.

Through a longitudinal case study, this article examines the evolution of the twofold function of formal governance mechanisms, for control and coordination, as an interorganizational relationship evolves. We ask whether all formal governance tools develop simultaneously, or whether each mechanism is designed and used for only one function; whether different mechanisms' attributes foster one function rather than the other; and whether different mechanisms are developed over time in order to provoke both functions' evolution. Finally, we explore whether the interorganizational relationship evolution in part explains the evolution of the two functions, or vice versa. Copyright © 2012 John Wiley & Sons, Ltd.

We apply a recent and more fine grained concept of authority to interorganizational networks and provide the first empirical evidence on how formal and real authority are allocated in joint ventures. Specifically, we show that intangibility of knowledge and uncertainty impact the allocation of authority in joint ventures via formal and real authority. Moreover, we provide evidence that formal authority and real authority function as complements in joint venture relationships. Copyright © 2012 John Wiley & Sons, Ltd.

This study integrates and extends insights from transaction cost economics, value-exchange model, relationship quality model and dependence perspective to discuss the efficacy of value-creating relational investments in affecting certain revenue-enhancing (relational) behaviours in different contexts of supplier–intermediate buyer dyadic relationships. Specifically, it extends the literature by examining the moderating role of leverage potential and the extent of relational polygamy. On the basis of a data set of 284 dyadic relationships, it has been found that value-creating relational investments made by the focal suppliers in their (intermediate) buyers enhance relationship quality, which ultimately translates into an enhancement of revenues of the focal supplier firm(s) because the (intermediate) buyers exhibit certain revenue-enhancing behaviours such as prolonging their relationships, increasing their business share and generating positive word-of-mouth about the focal supplier(s). It has also been found that the effect of value-creating relational investments is partially mediated through the relationship quality. In addition, tests of moderating effects reveal that efficacy of the value-creating relational investments varies across different levels of leverage potential and/or the extent of relational polygamy exhibited by the intermediate buyers in their respective supplier portfolios. Copyright © 2013 John Wiley & Sons, Ltd.

As firms engage in an increasing number of alliances, they face the challenge of managing such an alliance portfolio. Although existing studies on alliance portfolio management (APM) mainly focus on (i) alliance experience and (ii) APM best practices, they remain silent on how firms structurally design their APM system. On the basis of the survey data of 103 companies that engaged in technology alliances between 2006 and 2008, we identify four first-order (APM formalization, APM hierarchy, APM specialization, and APM participation) and two second-order (mechanistic APM and organic APM) dimensions that explain how firms design the management of their technology alliance portfolios. In addition, we find that adopting an organic approach toward designing APM significantly increases alliance portfolio performance, suggesting that particular APM designs might contribute to building alliance management capabilities. Copyright © 2013 John Wiley & Sons, Ltd.