In the Milgrom-Roberts's advertising model, introducing the possibility to die before customers' repurchase alters the firm's advertising incentive to signal hidden product quality. Two opposing forces result, one mechanical and the other strategic. Depending on their relative strengths, the equilibrium advertising can either rise or fall. To the extent that competition threatens firms' survival, our result explains the mixed findings on the causal effects of competition on advertising. Introducing firm deaths in their model offers a new test of whether advertising signals quality, still an unsettled empirical question since Nelson first articulates advertising as a signal in 1974.

Relating workplace injury and illness rates to import competition in the U.S. manufacturing sector, we identify two main empirical patterns. First, industries facing more intense import competition have lower workplace injury and illness rates. Second, jobs within industries facing more intense import competition are composed of a higher proportion of safe jobs and lower proportion of dangerous jobs compared with industries facing less intense import competition.

Policies that restrict outsiders are common. Some justifications include protecting insiders from high price and leaving more of the concerned products to insiders. Sometimes these policies fail to work because outsiders can get around the restrictions. In a model in which a policy of restricting outsiders is anticipated, we find that if the policy works, it only sometimes lowers the price. When the price does decrease, the product quality decreases too. Not every insider would benefit equally; those insiders who likely suffer are identified. While restricting outsiders may or may not reduce insiders’ consumer surplus, outsiders and the producer are always worse off. They therefore would find ways to get around the restrictions. Evaluating these policies must (a) take into account the possibility that they might not work at all, (b) check their effects beyond just price if they do work.

We construct a structural model that allows us to jointly estimate the demand for smartphones and paid apps using a Bayesian approach. Our data comes from more than 500 college students in Hong Kong and Shanghai. We find that the moral cost rather than the monetary cost of jailbreaking smartphones determines its prevalence. Users mainly jailbreak smartphones to use paid apps for free, a reason more important among Android users than iPhone users. Paid apps contribute the lion's share of the profits (between 53% and 71%) for both the Android and iPhone. Strictly prohibiting jailbreaking would decrease the aggregate market share of smartphones in the cell phone market. Apple, however, would sell even more iPhones at the expense of Android smartphones.

Recent lawsuits and anecdotal evidence suggest that some platforms discriminate against certain users through non-price practices, discouraging their participation without directly increasing revenue. We show that a monopolist two-sided platform with a prejudice against certain users - modeled as more costly to serve - chooses to discriminate only if the cost savings from reducing such users’ participation outweigh the network benefits they create. Surprisingly, user surpluses may increase under discrimination because the platform often voluntarily lowers price(s) - sometimes on both sides - to attract other users. Therefore, tightening anti-discrimination policies for platforms can increase price and decrease welfare.

We develop a model of jurisdictional competition for corporate charters among the states in which a firm's agency cost depends on the federal dividend income tax rate and the takeover regulations of its domicile state. When firms are mobile across states, the federal dividend income tax rate affects both the intensity of competition among the states and the equilibrium level of state takeover regulations. Our model shows that increasing dividend tax rate weakens the competition for corporate charters under a condition: dividend-paying and the market for corporate control are complementary corporate governance mechanisms. This condition holds empirically, suggesting that dividend tax not only discourages firms from paying dividends but also weakens their corporate governance by disincentivizing states to improve their corporate laws. (C) 2017 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

On October 11, 2011, a non-governmental organization called ActionAid published a report condemning the FTSE 100 firms for holding an unusually large number of subsidiaries in tax havens. Urging the government to implement appropriate actions, the report raised the firms' costs of holding tax haven subsidiaries. After this event, the stock prices of the nonfinancial firms experienced a 0.9% abnormal drop (corresponding to about £ 9 billion in market capitalization). Those better-governed firms and those with larger shares of subsidiaries in tax havens experienced larger drops. We find some evidence that government scrutiny, reputation, and investor sentiment were plausible channels of such a negative impact.

Some firms have achieved good performance in developing countries where the financial sector is far from established. One explanation in the literature is that these firms benefit from trade credit, a form of informal financing. Using a survey of firms in China conducted by the World Bank in early 2003, this article examines whether trade credit indeed boosts firm performance. Our ordinary least squares results show that trade credit is significantly and positively correlated with firm performance. However, using the instrumental variable approach to address endogeneity, we find that the statistical significance disappears. The results are robust to a series of robustness checks, casting doubt on the claim that trade credit boosts firm performance.

A valid defense of the use of resale price maintenance (RPM) in court now must explain how the RPM induces more services (or other non-pricing dimensions customers value). Often, however, services either do not play a significant role, or their significance is subject to debate. This happened in the 2013 China's RPM case of Rainbow v. Johnson & Johnson (J&J); J&J sold medical equipment to China's hospitals through various distributors but how significant was the distributors' services is debatable. We argue that J&J's RPM, even if it never elicited more services from its distributors, can be pro-competitive. We explain why the RPM did help J&J compete with other brands. We formalize our explanation in a model based on Winter (1993). The model has one upstream and two downstream firms. Unlike Winter (1993), the downstream firms only choose their prices but nothing else. Without services, there exist equilibria under which one downstream firm would under-price when the upstream firm offers a uniform wholesale price together with a lump-sum transfer. The upstream firm can curb such an under-pricing incentive by imposing a minimum RPM. In a numerical example, we show that the use of RPM without services can increase the welfare of both the whole supply chain and the consumers.

Property rights institutions significantly hinder firm productivity but not contracting institutions in China. Weakening property rights institutions by a standard deviation lowers firm productivity by 34.4% of its corresponding standard deviation. Small firms find weak property rights institutions more challenging than big firms do. We address endogeneity using instruments that are both relevant and separable. The results lend micro-level support to the explanation of country-level evidence given in Acemoglu and Johnson (2005), that individuals may get around weak contracting institutions by altering the contract terms but find it harder to mitigate the risk of expropriation.

This paper proposes a theory of competition and customization. When firms allocate their production to both custom-made and standardized products, the fraction of sales from the former will increase in the face of increased competition. Recent surveys conducted by the World Bank on Chinese firms provide a rare direct measure of customization that allows us to test the above-mentioned prediction. We find empirical results consistent with the prediction.

In a model of organizational choice, this paper shows that in face of an increasingly expected bailout from the government, outsourcing input production to an offshore location is more likely an optimal choice for a firm. Such a response is consistent with the three trends in the US manufacturing sector after the crisis: (a) employment keeps declining; (b) massive layoffs have not stopped; and (c) imported intermediate inputs have been gaining importance. Journal of Comparative Economics 42 (4) (2014) 983-993. The Chinese University of Hong Kong, Hong Kong. (C) 2014 Published by Elsevier Inc. on behalf of Association for Comparative Economic Studies.

While standard models of training focus on how input market affects firms' training decisions, this paper investigates the impact of product market competition on training provision. Using the longitudinal data from Statistics Canada's Workplace and Employee Survey, we find that increased competition is strongly associated with more training provision. This association is unlikely to be driven by unobserved heterogeneity, specific measures used and other relevant factors. To the extent that training is a significant source of human capital and industry competitiveness, our results suggest that increasing training is an important channel through which competition raises productivity.

The Alchian-Allen (1964) effect states that when a fixed per-unit cost is added to two substitutes, the more expensive (higher quality) one becomes relatively cheaper, and, thus, its consumption will increase. When applied to trade in vertically-differentiated goods, the importing regions demand relatively more high-quality goods. We examine how this result changes when the importing region is also endowed with the goods. We use a vertically-differentiated goods model with heterogeneous consumers in which prices are endogenously determined. We show that the importing regions with an endowment have a stronger Alchian-Allen effect than the regions that are not endowed. We use the auction data of Australian thoroughbred yearlings to empirically test our model and find consistent empirical patterns.

This article uses the data of 10 auctions from the two largest Australian auction houses to study how a racing horse is priced. We ask whether bloodline is indeed a determining factor. We find that the track record of its parents and siblings are important factors in determining the price of a yearling. Moreover, more mature horses and those purchased by foreign buyers are generally more expensive. We also show that racing horses sold in the flagship auctions are associated with a significant premium.

Using a World Bank survey of Chinese firms, I construct a set of measures to capture the extent to which a firm involves outsiders in information acquisition. I find that firms that outsource more are not more likely to involve outsiders in acquiring information. Weakening contracting institutions raises the difficulty of safeguarding information leakage, more so when a firm involves outsiders in information acquisition than when no outsiders are involved. I test this prediction and find that firms under weaker contracting institutions are significantly less likely to involve outsiders in information acquisition. (C) 2013 Elsevier B.V. All rights reserved.

Skill content varies enormously across industries and over time. This paper shows that import competition can explain a significant portion of the variation in various skill measures across manufacturing industries. Industries that face more intense import competition employ more nonroutine skill sets, including cognitive, interpersonal, and manual skills, and fewer cognitive routine skills. In addition, we find that the impact of import competition on skills is not driven by imports from low-wage countries or from China. A number of robustness checks also suggest that our results are unlikely to be driven by econometric problems.

A larger economy is usually more diverse. To the extent that a more diverse economy requires more human capital, the economy takes more real resources away from growing itself into accumulating human capital. Scale effects – that a larger economy grows faster – may be compromised. This idea is formalized in an expanding variety growth model in which individual labour chooses his own human capital endogenously. We show that whether a larger population results in faster growth depends on the way how diversity affects the human capital requirement.

Does outsourcing compromise product quality? Does sound contract enforcement alleviate this concern? We offer a simple model to illustrate how outsourcing leads to lower product quality and how contract enforcement helps mitigate this problem. These theoretical predictions are borne out of a survey of 2,400 firms in China conducted by the World Bank in 2003.