Margarida Catalão-Lopes

Mergers of Producers of Complements: How Autonomous Markets Change the Price Effects

We analyze the price effects of mergers to monopoly between producers of complementary goods when there exists a fraction of consumers that value only one of the components. We show that customers are more likely to face a price decrease for the composite good under this setting than when such consumers do not exist.

Portuguese stock market returns and oil price variations

This article investigates the existence of a dynamic link between oil prices and stock market returns. A vector autoregressive model is estimated for Portugal, a small open non-producer economy. Results show that none of the three types of oil price shocks addressed – global supply shocks, global demand shocks for all industrial commodities and precautionary demand shocks – affect Portuguese stock market returns.

Economies of Scope, Entry Deterrence and Welfare

Abstract This paper develops a model where the incumbent may expand to a related market to signal economies of scope and deter entry in the former market. We show that the incumbent only expands when scope economies are large enough. Thus expansion is a signal of larger economies of scope and, for certain parameter values, leads to entry deterrence. Although our game is two-period, the expansion strategy creates a long-term advantage. We further investigate the implications of prohibiting an entry-deterrent expansion. A major finding is that, in our model, this prohibition always decreases consumer surplus. In terms of global welfare, the impact is ambiguous but negative for many parameter values.

Social responsibility, corporate giving and the tide

Purpose The purpose of this paper is to address firms’ decisions on corporate social responsibility (CSR) as a function of the economic environment. The paper focuses on corporate giving, a CSR dimension that is especially important in an economic downturn such as the one experienced by many European economies since 2007-2008. Design/methodology/approach A theoretical framework comprising product differentiation and market competition is proposed. The paper investigates whether adverse economic conditions refrain corporate giving or, alternatively, stimulate it as a differentiation and demand enhancing instrument. Econometric empirical testing on the business cycle properties of giving at an aggregate level is also conducted. Findings According to theoretical results, firms seem to refrain giving under adverse economic conditions in the short run. Empirically, the paper concludes for a pro cyclical contemporaneous relation of corporate giving with real gross domestic product, supporting the theoretical finding. In a dynamic perspective, however, giving causes revenues and firms tend to donate more than a few years after the downturn. Originality/value The paper examines the behaviour of an under researched component of corporate social responsibility, which is especially important in economic downturns - giving. It considers continuous degrees of market competition and differentiation.

Risk Tolerance Evaluation for an Oil and Gas Company Using a Multi-criteria Approach

Oil and gas companies’ earnings are heavily affected by prices fluctuations of crude oil, refined products and natural gas. The use of hedging strategies should take into account the company’s risk tolerance, which assessment has no consensual technique. The present research evaluates the risk tolerance of an oil and gas company with four approaches: Howard’s, Delquie’s, CAPM and a risk assessment questionnaire. Monte Carlo simulation with a Copula-GARCH prices modeling and stochastic optimization are used to find optimal derivatives portfolios according to the risk tolerances previously obtained. The hedging results are then evaluated with a multi-criteria model showing how this analysis can have a decisive role in the final hedging recommendation.

Signaling advertising by multiproduct firms

We consider the use of advertising expenses as quality signals in multiproduct firms, extending previous results on single product firms. In our model, a firm introduces sequentially two products whose qualities are positively correlated. We investigate whether there exist information spillovers from the first to the second market. We show that, when correlation is high, the equilibrium in market 2 depends on the quality reputation the firm has gained in market 1. Moreover, if a firm with a high-quality product 1 wants to separate from its low-quality counterpart, it needs to advertise more in this market than if the qualities of the two products are unrelated. This advertising level signals not only high quality in the first market, but also the likely quality of the second product. Thus, advertising in the first market has information spillovers in the second market.

Evaluating Price Risk Mitigation Strategies for an Oil and Gas Company

Financial hedging strategies are one of the preferred practices to protect oil and gas companies from prices’ volatility. The common approach consists in each business unit (e.g. crude exploration, natural gas, and refining) protecting itself against its own price risks. According to the “theory of syndicates” risk aggregation, and assuming that the risk tolerance assessment process is applied to every business unit, it is not clear whether separate hedging portfolio selections achieve a better risk protection than selection at company level. In this paper Copula-GARCH models are used to capture prices’ correlation and volatility, while business unit earnings are generated through Monte Carlo simulation. Optimal hedging portfolios are achieved with stochastic optimization over utility functions. We confront the business units’ portfolios through coherent risk measures against a portfolio for the whole company, which reveals to be the best option.