Strategic commitments of downstream investment firms

Lee, DongJoon; Oh, Joonghwa

doi:10.1002/mde.3511

Manage Decis Econ

2021

DOI: 10.1002/mde.3511

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Strategic commitments of downstream investment firms

DongJoon Lee

Joonghwa Oh

Abstract: This study investigates the strategic commitment of downstream firms' private R&D investments. While an observable investment, as a pre‐production commitment, influences an upstream firm's input price, it affects a rival downstream firm's output. We show that both downstream firms commit to underinvestment (overinvestment) to reduce an input price (compete with a rival firm) in cases of small (large) product substitutability. However, they make their aggressive investments unobservable in the market in cases o… Show more

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2024

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Cited by 3 publications

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“…Note that we do not consider the conditions that firms can disclose their information voluntarily.4 Rey and Vergė (2004) refer to this assumption as "passive beliefs," arguing that these beliefs present a natural restriction to the potential equilibria. For more examples, seeKopel and Putz (2021) andLee and Oh (2022).…”

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Observable and Unobservable Investment Information in Multiple Markets

Ishinagi,

2024

EAL

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<p class="MsoNormal" style="margin-top: 12pt; text-align: justify;"><span lang="EN-US" style="font-family: 'times new roman', times, serif; font-size: 14pt;">This study considers the effects of disclosure conditions on firms' investment decisions when facing an identical competitor in multiple markets. Assuming that there are congestion costs between multiple investments to reduce marginal cost for each market, this study focuses on the cases where the disclosure conditions may differ by market. Like previous studies on single Cournot competition, these results show that firms invest more in the observable investment markets than in the unobservable markets under symmetric disclosure conditions. However, firms invest more in the unobservable market if there are asymmetric disclosure conditions.</span></p>

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confidence: 99%

Observable and Unobservable Investment Information in Multiple Markets

Ishinagi,

2024

EAL

Self Cite

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How underinvestment reduces underpricing

Bade,

Hirth

2024

Int. J Fin Econ

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We develop an economic model demonstrating that firms can benefit from committing to underinvestment. The model considers a firm's IPO, secondary‐market trading and subsequent investment decision. We analyse the conditions under which underinvestment can paradoxically be advantageous despite reducing the fundamental value of the firm. The benefit of committing to underinvest post‐IPO is expressed in reduced underpricing and thus a higher valuation during the IPO. We furthermore show that the firm may commit to an inefficient investment policy by appointing a manager with biased expectations or risk aversion. Our findings imply that, under certain conditions, firms are better off relying on biased managers when their initial outlook is poor, but risk‐averse managers when their initial outlook is good.

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Channel selection strategy with consumer impulse purchase in livestream selling

Chen,

Xu,

2024

Manage Decis Econ

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Consumer impulsive purchasing is very common, especially in the livestream selling where they are influenced by policies such as low prices, limited time, and limited quantity. This behavior can increase a firm's sales, but it also leads to higher return rates. Considering consumer impulse purchase, this paper conducts an analytical model to investigate the conditions for a firm to introduce a livestream channel and whether the firm should adopt a low or moderate livestream price strategy when introducing a livestream channel. Our results show that, when return processing cost is small enough, the firm benefits from the livestream strategies as long as the streamer's fan effect is larger than a threshold. Specifically, a firm prefers to adopt the low livestream price strategy when cooperating with a large fan effect streamer and a moderate livestream price strategy with a small fan effect streamer. However, when return processing cost is large, the low livestream price strategy cannot be the dominant strategy. Furthermore, we make several extensions (i.e., different impulse utility on different livestream price, impact of positive impulse utility of low impulsive consumers, different online return rates of different types of consumers, the costs of introducing the livestream channel, and consumer return processing cost) to verify the robustness of the model, and the main conclusions remain unchanged. These results provide guidance for firms on the introduction of livestream channel and pricing decisions of different channels.

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Strategic commitments of downstream investment firms

Cited by 3 publications

References 19 publications

Observable and Unobservable Investment Information in Multiple Markets

Observable and Unobservable Investment Information in Multiple Markets

How underinvestment reduces underpricing

Channel selection strategy with consumer impulse purchase in livestream selling

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