Why Don't Prices Fall in a Recession? Financial Constraints, Investment, and Customer Relations

We construct a model of a financially constrained firm making pricing and investment decisions. The firm operates in a market where customers respond slowly to price changes and there are implementation lags in investment (time to build). Our model implies that the markup over marginal cost is counter-cyclical, the product price responds slowly to demand shocks, and quickly to cost shocks, and the price is strongly related to investment. Estimating the decision rules on aggregate data for Swedish industry, we find that the qualitative results are in line with our model.customer market; price rigidity; price equation; investment equation

Wage and price joint dynamics at the firm level: an empirical analysis

This article provides evidence about the interrelationships between wages and prices at the microeconomic level. We rely on the right-to manage model to specify and estimate a multivariate model explaining the timing and magnitude of wage changes at the firm level. The modeling of price changes relies on a state-dependent model. The data we use is a quarterly panel of about 1800 firms from the French manufacturing industry, observed over the years 1998 to 2005. We find the occurrence of wage changes to be essentially time dependent, though weakly related to the state of the economy. However, the magnitude of wage changes strongly depends on macroeconomic variables, namely inflation and unemployment, and to a lesser extent on the evolution of the firm product price and on its productivity gains. Changes in the firm product price are mostly driven by the evolution of its costs and more specifically by that of its intermediate inputs. The wage cost, as well as the production and the industry level inflation, have a weaker influence.wages, price stickiness, dynamic model, factor loadings.

Price determination in monopolistic markets with inventory adjustment

This paper presents a practical model for the analysis of the price determination mechanism in raw materials markets that are characterized by the dominance of a large firm. The model takes explicit note of the influence of inventory adjustments; it is postulated that the dominant firm?s decision on price and production levels is negatively related to the difference between actual and desired inventory levels. In a first empirical test, the model is applied to an analysis of the nickel industry. The empirical results support the hypothesized role of inventories and show the importance of inventory adjustments relative to the other factors determining price and production behavior.

Price-caps and Efficient Pricing for the Electricity Italian Market

Deregulation of the electricity generating industry, under way in the United States as well as in Europe, would yield economies to operate in a more competitive environment causing improvement of efficiency and the possibility to develop related financial markets to manage price uncertainty. Electricity spot prices tend to be remarkably volatile as consequence of extreme weather conditions, therefore there seems to be sufficient price uncertainty to warrant the development of derivative markets, however it is important to verify whether the underlying spot market is sufficiently competitive and well functioning to stimulate the development of related financial markets. Analyzing the features and price volatility of European markets which undertook the same process, as well as Norwey, Germany and Spain, we formulate a simple model to control the well functioning of energy spot markets in a deregulated context. The model is tested using Norwegian, Deutsch and Spanish spot prices over the last two years in order to assess the correct price formation in competitive operating markets.Electricity market, Price limits, Market Power

Forecasting dairy herd development in China

With the rapid development of the Chinese dairy industry, various researchers have examined the industry from many perspectives related to supply and demand. One of the most important factors for this industry is the total number of dairy cows and it is this aspect that will be addressed in this paper. This paper examines how economic and biological factors influenced the size of the Chinese dairy herd population using an autoregressive distributed lag model and a dairy herd inventory model. The estimated results showed that the biological process was dominating the development of the Chinese dairy herd. The ratio of milk to corn price, as an economic variable, is another factor that had an impact. Beef price, which was found to be an influential variable for the United States dairy cattle inventory did not have a significant impact on the Chinese dairy industry. This is expected to change as the dairy industry in China develops. Results from this study also suggest that Chinese farmers have a positive expectation in the long term towards the dairy industry and that there are high adjustment costs in dairy production in China. Finally, the projection results showed that it is very likely that the dairy cattle numbers in China would double between 2005 and 2010.dairy herd, China, cattle inventory model, projection, Livestock Production/Industries,

Does Patience Pay? Empirical Testing of the Option to Delay Accepting a Tender Offer in the U.S. Banking Sector

We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited.Option-pricing Model, Mergers and Acquisitions, U.S. Banking Industry

Defining Strategic Position and Busines Model of CV Energi Selaras Alam

Fuel –addictive industry is a growing industry in Indonesia. With potential market of 80 million vehicles in Indonesia where most modern car use a subsidized –low quality fuel, market opportunity of this industry is very big. Although this industry is very influenced by world oil price and government regulation about subsidized fuel. CV.Energy Selaras Alam is the new comer in this industry. Founded in 2011, this firm provides a low price and highly efficient octane booster product to the society. Along the decreased issue of subsidized fuel price, this firm difficult to maintain their sales growth and expand to broader market that leads to significant decrease on its profit. If this condition allowed for the next couple month, this will lead company to bankruptcy.To understanding company's condition better, this research use methods of observation, literature survey and interview. Resource analysis and value chain analysis are used for internal analysis. PESTEL, Porter's 5 forces, and strategic group are used for external analysis. By using interrelationship diagram, it known that the root cause of this company's issue is the un-clarity of its strategic positioning.To formulate the solution, SWOT, IFAS, EFAS and SFAS matrix used to find CV.ESA new strategic position. Alternative strategy is generated from TOWS Matrix, result 13 strategies. Every strategy is integrated and mapped back into a new business model to create more integrated result for this company. The conclusion from this proposed strategy is the new strategy of CV ESA will be based on cost focus strategic position. This new strategy proposed to diversify product and marketing channel that focus on car and motorcycle user and also local industry that located only in West Java. Action Plan is derived from business model formulation, and prepared for 3 year implementation Plan. The implementation plan of those strategies is suggested to adjust the number of marketing and sales armada. This armada will be focused on creating new alliances and partnership that will be a success foundation of strategy proposed. Strategic Implementation will be implemented in the next 3 years and will start in 2013. Hopefully, this Research result would contribute a better understanding related with the importance of Strategic position and business Model in Startup Compan

The price of risk in construction projects: contingency approximation model (CAM)

Little attention has been focussed on a precise definition and evaluation mechanism for project management risk specifically related to contractors. When bidding, contractors traditionally price risks using unsystematic approaches. The high business failure rate our industry records may indicate that the current unsystematic mechanisms contractors use for building up contingencies may be inadequate. The reluctance of some contractors to include a price for risk in their tenders when bidding for work competitively may also not be a useful approach. Here, instead, we first define the meaning of contractor contingency, and then we develop a facile quantitative technique that contractors can use to estimate a price for project risk. This model will help contractors analyse their exposure to project risks; and help them express the risk in monetary terms for management action. When bidding for work, they can decide how to allocate contingencies strategically in a way that balances risk and reward

A look into the cross-section of industry stock returns

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and EconomicsAverage stock returns on industry portfolios are related to industry total market equity and industry market equity concentration. Small industries outperform large industries marginally, while high-concentration industries outperform low-concentration industries significantly. The industry concentration premium persists after controlling for firm size and book-to-market equity ratio. A three-factor model using risk factors associated to industry size and industry concentration compares well to the Fama-French three-factor model, capturing return variation of portfolios formed on industry size, concentration, book-to-market equity, debt-to-equity, dividend-to-price, and earnings-to-price. My results are consistent with traditional economic theory and industry strategic analysis

Does patience pay? : empirical testing of the option to delay accepting a tender offer in the U.S. banking sector

We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited. JEL Classification: G34, C1