Alexis Jacquemin

Entropy Measure of Diversification and Corporate Growth

During the past decade or more, a number of authors have proposed (and applied) a number of measures of corporate diversification. These have ranged from simple counts of the number of products to measures which assign various weights to the relative importance of each product within the corporations total product mix.1 For the most part, these measures have direct counterparts in familiar measures of industrial structure. For example, Michael Gort [5] defined, as one measure of corporate diversification, the ratio of the firms sales within the firms primary industry to the firms total sales. This is the equivalent (within the firm) of the primary product specialization ratio reported for 4-digit industries by the Bureau of the Census. A variation of Orris Herfindahls index of industrial concentration-the sum of the squared shares of each products contribution to the firms total output-has been used by one of the authors of this paper [i], [2]. Others have suggested the application to corporate diversification of what has come to be called the entropy measure of industrial concentration.2 There is no axiomatic analysis or general model of diversification which suggests the advantage of any single index; at this stage it is therefore appropriate to ask which particular index performs best empirically. This note outlines a theme common to all these measures, identifies a major advantage of the entropy measure in the analysis of corporate diversification, and provides some comparative applications of the entropy measure and of the Herfindahl index to 460 of the largest US manufacturing corporations.

The Persistence of Profits - a European Comparison

This paper is concerned with modeling the movements in profits of firms over time. At the heart of the emp irical model is a latent variables problem which arises from the fact that entry and imitation do not actually have to occur to have an ef fect on profits. A solution to this problem is explored, and then emp irical results are presented comparing a sample of firms from the Uni ted Kingdom, France, and West Germany. Copyright 1988 by Royal Economic Society.

Cartels, collusion, and horizontal merger

Publisher Summary This chapter discusses the principal theoretical and practical problems of the economics of cartels, collusion, and horizontal merger. Because the new theoretical approaches are not easily modified to encompass welfare considerations, except in a very partial-equilibrium setting, the positive side of the analysis has received more weight than the normative. The principal factors that facilitate or hinder collusion are considered. The chapter discusses the types and extent of horizontal collusion. The principal forms of explicit agreement are cartels, joint ventures, and horizontal mergers. Empirical tests of factors that facilitate or hinder collusion are of two sorts: econometric and experimental. In a series of experiments described in the chapter, the pricing performance of an industry with and without certain types of contractual clauses, advance notice of price changes, and public price posting are compared. The combination of these practices is sufficient to raise price significantly above the level observed when the practices are removed.

Degree of Monopoly, Indices of Concentration and Threat of Entry

Degree of Monopoly, Indices of Concentration and Threat of Entry Author(s): David Encaoua and Alexis Jacquemin Source: International Economic Review, Vol. 21, No. 1 (Feb., 1980), pp. 87-105 Published by: Wiley for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research -Osaka University Stable URL: http://www.jstor.org/stable/2526242 . Accessed: 09/11/2014 05:57

Exports in an Imperfect Competition Framework: An Analysis of 1,446 Exporters

This paper explores empirically how export-competing performance is related to domestic and foreign market structure. Recent theoretical propositions that link elements of international and industrial economics are successfully tested on a vast sample of micro data. By means of nonparametric statistics as well as of regression analysis, firm size, industrial concentration, product differentiation, location, information, and foreign subsidiaries are shown to be important elements in explaining Belgian exports behavior. Among the suggestions for economic policy that emerge, it appears that fostering large domestic sales of a firm and domestic concentration or discouraging direct investment abroad will put a brake on export rates.

Industrial change, barriers to mobility, and European industrial policy

Within the European Community, there is now a widespread feeling of industrial crisis. In contrast to the prosperous 1950s and 1960s, the 1970s and 1980s have seen sluggish growth and a series of major shocks to which European economies have adjusted only slowly. In this paper, we evaluate the design of industrial policy within this context. Our theme is that industrial policy can and should be used to encourage and direct change in industrial markets. Drawing both on recent developments in the economic theory of industrial organization and on a growing body of empirical evidence, we emphasize not only the market failures which prevent free markets attaining static efficiency but also the longer run importance of dynamic incentives in a changing world. In our view, industrial policy should be designed not to specify and enforce particular outcomes but to alter market processes by attacking the rigidities which impede both the force of market selection external to the firm, and the pressures for change from within the firm. Our discussion is in two main parts. In Section 2 we contrast the policy problems of the 1960s with those of the 1970s and 1980s, in part to show why a change in industrial policy was needed, and in part to stress how market rigidities have become the key problem which industrial policy must tackle. Section 3, the main part of the paper, investigates these rigidities, particularly those arising from entry and exit barriers

Familial control, size and performance in the largest French firms

This paper explores to what extent large French firms in the hands of wealthy families have performed in a significantly different manner from non-familial firms. The results of the econometric analysis confirms the Monsen Downs Williamson theory according to which only a combination of size and divergent goals could cause deviations from profit-maximization. Indeed, it is established that when ownership and management are not essentially separate, large size has a systematically better impact upon profitability than when such a divorce exists. Differences in financial structure viz leverage do not affect the result.

Dominant firms and their alleged decline

Abstract By way of a survey of recent literature on the theory of strategic competition, this paper focuses on the question of whether dominant firms decline; the traditional argument suggesting decline is found to be based on a rather unsatisfactory modelling of dominance, and more acceptable conceptualizations suggest that such privileged positions will persist.

Competition and imports in the European market

Theoretical and empirical research suggests that import competition within European markets imposes a major constraint on domestic firmss price-cost margins. The programme for the completion of the European Communitys (EC) internal market by 1992 is largely based on the effects expected from a reinforcement of such a constraint. But imports from the rest of the world could also exercise an important trade discipline on European market performance. In fact there are various arguments suggesting that the disciplinary effect of extra-EC imports could be stronger than that of intra-EC imports. The paper develops an empirical model to measure the relative strength of import discipline on price-cost margins in European industries. We find that both potential and actual competition induced by imports are effective in narrowing such margins. Furthermore, trade discipline varies not only according to various features of industry but also according to the origin of imports: only extra-EC imports were found to exercise a significant impact on price-cost margins.

Horizontal Concentration and European Merger Policy

In the second section of this policy paper, the main theoretical arguments concerning the costs and benefits of horizontal mergers as a way of modifying market conditions are identified, as well as the exploration of some indicators that could be used to evaluate the probability of these costs and benefits in a European context.