John Asker

Corporate Investment and Stock Market Listing: A Puzzle?

We investigate whether short-termism distorts the investment decisions of stock market-listed firms. To do so, we compare the investment behavior of observably similar public and private firms, using a new data source on private U.S. firms and assuming for identification that closely held private firms are subject to fewer short-termist pressures. Our results show that compared with private firms, public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news. These findings are consistent with the notion that short-termist pressures distort investment decisions.

Dynamic Inputs and Resource (Mis)Allocation

We investigate the role of dynamic production inputs and their associated adjustment costs in shaping the dispersion of static measures of capital misallocation within industries (and countries). Across nine data sets spanning 40 countries, we find that industries exhibiting greater time-series volatility of productivity have greater cross-sectional dispersion of the marginal revenue product of capital. We use a standard investment model with adjustment costs to show that variation in the volatility of productivity across these industries and economies can explain a large share (80–90 percent) of the cross-industry (and cross-country) variation in the dispersion of the marginal revenue product of capital.

Competition and the Structure of Vertical Relationships in Capital Markets

We show that information flows between investment banks and their clients affect relationships and that shocks to these flows affect corporate investment. Firms avoid sharing investment banks in their industry, but only when they engage in product market competition. This suggests that concerns about disclosure of confidential information to strategic rivals determine firms’ investment bank choices. Using exogenous shocks to information flows arising from bank mergers, we show that the desire to avoid sharing banks has a substantial effect on investment. These information effects help us understand how the investment banking industry is structured, how banks compete, and how prices are set.

Diagnosing Foreclosure due to Exclusive Dealing

Exclusive dealing arrangements, in which a distributor contracts to work exclusively with a single manufacturer, can be efficiency enhancing or they can be an anticompetitive means to foreclose markets. This paper evaluates the effect of exclusive distribution arrangements on competition in the Chicago beer market in 1994. A diagnostic test is provided to judge whether exclusive arrangements between brewers and their distributors lead to foreclosure. To implement this test I estimate a model of consumer demand and firm behavior that incorporates industry details and allows for distribution through exclusive and shared channels. The test indicates that foreclosure effects are not present in this market, suggesting that the most likely effect of intervention would be to reduce social welfare.

Equilibrium in Scoring Auctions

This paper studies multi-attribute auctions in which a buyer seeks to procure a complex good and evaluate offers using a quasi-linear scoring rule. Suppliers have private information about their costs, which is summarized by a multi-dimensional type. The scoring rule reduces the multidimensional bids submitted by each supplier to a single dimension, the score, which is used for deciding on the allocation and the resulting contractual obligation. We exploit this idea and obtain two kinds of results. First, we characterize the set of equilibria in quasi-linear scoring auctions with multi-dimensional types. In particular, we show that there exists a mapping between the class of equilibria in these scoring auctions and those in standard single object IPV auctions. Second, we prove a new expected utility equivalence theorem for quasi-linear scoring auctions.

Diagnosing Foreclosure due to Exclusive Dealing: Diagnosing Foreclosure due to Exclusive Dealing

Exclusive dealing arrangements, in which a distributor agrees to work exclusively with a single manufacturer, can be efficiency enhancing or can be an anticompetitive means to foreclose markets. This paper evaluates the effect of exclusive distribution arrangements on competition in the Chicago beer market in 1994. A diagnostic test is provided to judge whether exclusive arrangements lead to foreclosure. To implement this test a model of consumer demand and firm behavior is estimated that incorporates industry details and allows for distribution through exclusive and shared channels. The test indicates that foreclosure effects are not present in this market.

Vertical Practices Facilitating Exclusion

Resale price maintenance (RPM), slotting fees, loyalty rebates and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent’s profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.