Archive for February, 2011

Joe Mahoney Wins Irwin Award

| Peter Klein |

Congratulations to O&M friend Joe Mahoney for winning the Irwin Outstanding Educator Award for 2011. The Irwin Award is issued each year by the Business Policy and Strategy Division of the Academy of Management to someone who “(1) has demonstrated outstanding teaching capabilities in business strategy over an extended period of time and the ability to enable future strategy scholars to contribute original research as well as teaching effectively; (2) has had an important impact on strategy pedagogy through demonstrated expertise; and (3) cares deeply about the subject of Strategic Management and the development of his or her students.”

Joe has been my friend and colleague for several years and it’s great to see him join such luminaries as Michael Porter, Mike Hitt, Don Hambrick, Jay Barney, Kathy Eisenhardt, Pankaj Ghemawat, Will Mitchell, and Anita McGahan on the list of Irwin winners.

28 February 2011 at 5:15 pm 10 comments

Is Counterfeiting Good for Business?

| Peter Klein |

Sometimes, according to Yi Qian in a new NBER Working Paper, “Counterfeiters: Foes or Friends?” In some cases, counterfeiting constitutes advertising that increases sales of the original product. It makes sense; how many buyers of faux Rolex watches or Gucci purses would have bought the authentic items if the fakes were banned? I suppose there’s a negative externality (more fakes means less exclusivity means a lower equilibrium price) that must be taken into account as well. An interesting analysis, in any case. Applications to digital media are left as an exercise for the reader.

Counterfeiters: Foes or Friends?
Yi Qian
NBER Working Paper No. 16785
Issued in February 2011

This paper combines a natural policy experiment and randomized lab experiments to estimate the differential impacts of counterfeiting on the sales and purchase intent of branded products of various quality levels. I collect new product-line level panel data from Chinese shoe companies from 1993-2004. Exploiting the discontinuity of government enforcement efforts for the footwear sector in 1995 and the differences in authentic companies’ relationships with the government, I identify heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers. In particular, counterfeits have both advertising effects for the brand and substitution effects for authentic products. The advertising effect dominates substitution effect for high-end authentic product sales, and the substitution effect outweighs advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for the high-fashion products (such as women’s high-leg boots) and for the high-end shoes of the brands that were not yet well-known at the time of the entry by counterfeiters. I provide a theoretical framework to generalize such impacts due to counterfeits. Analogous heterogeneous effects of counterfeiting on consumer purchase intent for branded products of three quality tiers are also discovered in lab experiments. Responses in the lab allude to the fact that counterfeits could increase brand awareness as well as steal business.

28 February 2011 at 3:31 pm 3 comments

The Forgotten: “Alternative Views of Mengerian Entrepreneurship”

| Peter Klein |

A film blog I follow, the Mubi Daily Notebook (formerly called The Auteurs Notebook) runs a regular feature called “The Forgotten,” showcasing obscure but important older titles. I propose doing the same thing here. Our first entry is a 1979 article by Dolores Tremewan Martin, “Alternative Views of Mengerian Entrepreneurship” (History of Political Economy 11, no. 2). Martin provides an excellent summary and critique of Menger’s subtle approach to the entrepreneur, one largely ignored in the current entrepreneurship literature, even among Austrian economists. Contrasting Schumpeterian and Knightian views on entrepreneurship, Martin argues that Menger’s position is close to Knight’s (and, hence, that Knight is much closer to the Austrian school than is generally recognized).

As Martin points out, Menger’s entrepreneur (Unternehmer) is a resource-owning, information-acquiring coordinator seeking to acquire and combine undervalued assets (using an “input-computing capacity”). Entrepreneurial activity is scarce, in that it is associated with ownership of scarce capital, but also “unique in that, unlike other goods of higher order, it is not intended for exchange and therefore does not command a price.” There are important differences bewteen Menger and Knight concerning types of uncertainty and the effect of uncertainty on profit. Still:

Menger does not treat the entrepreneur as being the “innovator,” “mover,” or “force of change.” Menger places stress on the entrepreneurial function and the role of uncertainty, not innovation, as giving rise to the possibility for rewards. As Schumpeter [the historian of economic thought] suggests, the economic process viewed by Carl Menger is essentially similar to that of Frank Knight. . . . For Menger (as for Knight) the entrepreneurial activity consists of a more correct — “more rational” — evaluation of goods of higher order. This view contrasts with Schumpeter’s personification of the entrepreneur as the hero of the capitalist drama.

25 February 2011 at 6:54 pm 5 comments

Creative Destruction, Music-Industry Edition

| Peter Klein |

Note that the chart nicely illustrates not only the competition among formats, but the industry’s overall decline. Indeed, “creative destruction” is a good name for the the damage done to the creative arts by the recording industry’s approach to digital media.

22 February 2011 at 1:24 pm 9 comments

Ginsburg and Wright on Behavioral Law and Economics

| Dick Langlois |

Judge Douglas Ginsburg will be presenting a paper (written with Josh Wright) called “Behavioral Law and Economics: Its Origins, Fatal Flaws, and Implications for Liberty” at Columbia next week. I am on the mailing list for the Law and Economics Workshop at Columbia, so I received a copy of the paper as an email attachment; but the email specifically requests that the paper not be forwarded, so I won’t make it available here. I imagine Josh will post it eventually. But if you’re in NYC, you can hear the paper presented on Friday, February 25, 11:30am-1:00pm, in the Levien Room (Warren Hall, W. 116th near Morningside, across from the main law school building, 10th Floor).

19 February 2011 at 10:34 am 1 comment

Most Interesting Path-Dependence Paper I Saw Today

| Peter Klein |

Just to show that econometric models apply anywhere and everywhere, check out this new Barro paper (via Danny Sokol):

Saints Marching In, 1590-2009
Robert J. Barro, Rachel M. McCleary
NBER Working Paper No. 16769
February 2011

The Catholic Church has been making saints for centuries, typically in a two-stage process featuring beatification and canonization. We analyze determinants of rates of beatification and canonization (for non-martyrs) over time and across six world regions. The research uses a recently assembled data set on numbers and characteristics of beatifieds and saints chosen since 1590. We classify these blessed persons regionally in accordance with residence at death. These data are combined with time-series estimates of regional populations of Catholics, broadly-defined Protestants, Orthodox, and Evangelicals (mostly a sub-set of Protestants). Regression estimates indicate that the canonization rate depends strongly on the number of candidates, gauged by a region’s stock of beatifieds who have not yet been canonized. The beatification rate depends positively on the region’s stock of persons previously canonized. The last two popes, John Paul II and Benedict XVI (the only non-Italians in our sample), are outliers, choosing blessed persons at a much higher rate than that of their predecessors. Since around 1900, the naming of blessed persons seems to reflect a response by the Catholic Church to competition from Protestantism or Evangelicalism. We find no evidence, at least since 1590, of competition between the Catholic and Orthodox Churches.

18 February 2011 at 9:55 am 7 comments

Mario Rizzo’s Graduate Course in Behavioral Economics

| Peter Klein |

Check out the syllabus and join the discussion at ThinkMarkets. I appreciate boat-rocking as much as anyone but am personally in what Mario terms (in his syllabus) the “classical” camp. Still, this is a course I would definitely take. If he’s an easy grader.

17 February 2011 at 9:57 am 2 comments

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
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Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
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