The behavior of economic agents and market performance

113 Pages·2013·0.49 MB·English

AN ABSTRACT OF THE DISSERTATION OF
Jayendra Gokhale for the degree of Doctor of Philosophy in Economics, presented on
May 15, 2013.
Title: The Behavior of Economic Agents and Market Performance
Abstract approved:____________________________________________________
Victor J. Tremblay
This dissertation addresses issues concerning the behavior of firms, which has
significant effects on performance. In the first study, we empirically investigate the effect
of the reduction in number of firms on price competition in the U.S. macro-brewing
industry. The number of macro brewing firms decreased from 766 in 1935 to about 20
today. Major national brewers such as Anheuser Busch, Miller and Coors have
continually gained market share. In spite of the reduction in number of competitors,
market power remains low. There is evidence in the literature that changes in marketing
and production technology have favored large brewers. However, an intense war of
attrition has historically kept prices low. As this war wound down in the late 1980s, the
number of firms diminished unabated. Many theoretical models of oligopoly behavior
suggest that a decrease in number of firms reduces competition and increases price. We
use two different techniques and find that price competition remains high even though the
number of rivals has fallen.
In the second study, we estimate the life cycle of movies in theaters. In this
market there is no price competition. The primary form of competition is through product
differentiation in the form of product quality, advertising and genre. We find evidence
that the longer the duration of movies in theaters, the greater is the probability of death.
Secondly, we also observe that a movie with either higher advertising expenditures or
better product quality has a better probability of survival. Thirdly, we find that a movie
which faces stiffer competition from substitutes is more likely to have a greater decay of
sales.
In the third study, we investigate the effect of product recalls due to an unintended
acceleration problem on the market value of Toyota. We investigate four cases related to
unintended acceleration problems. We find evidence of a significant negative effect on
the market value of Toyota in the major recall in January 2010. Following this recall,
there were Congressional hearings and testimony of the CEO of Toyota. Congress
requested the National Highway Traffic Safety Administration (NHTSA) to investigate
whether or not the fix recommended by Toyota was sufficient to solve the problem.
When the NHTSA study concluded that Toyota had correctly solved the problem, the
market value of Toyota substantially increased.
©Copyright by Jayendra Gokhale
May 15, 2013
All Rights Reserved
The Behavior of Economic Agents and Market Performance

by
Jayendra Gokhale

A DISSERTATION

submitted to

Oregon State University

in partial fulfillment of
the requirements for the
degree of
Doctor of Philosophy

Presented May 15, 2013
Commencement June 2013
Doctor of Philosophy dissertation of Jayendra Gokhale presented on May 15, 2013.
APPROVED:
___________________________________________________________________
Major Professor, representing Economics
___________________________________________________________________
Head of the Department of Agricultural and Resource Economics
___________________________________________________________________
Dean of the Graduate School
I understand that my dissertation will become part of the permanent collection of
Oregon State University libraries. My signature below authorizes release of my
dissertation to any reader upon request.
_____________________________________________________
Jayendra Gokhale, Author
ACKNOWLEDGEMENTS
Many people were instrumental in making sure that this thesis came to fruition.
This dissertation would have not been possible without the unending support, motivation
and direction from my advisor and Chair of the Dissertation Committee, Dr. Victor J.
Tremblay. His patience, acute insight and countless hours of guidance and
encouragement gave focus and direction to this research.
I am indebted to Dr. Wesley W. Wilson for his insightful direction, inspirational
ideas and guidance. I would also like to express my gratitude to Dr. Carol Tremblay for
her support. In particular, her feedback made a huge difference in the econometrics of my
research. I am indebted to Dr. Shawna Grosskopf for her interest in my research and for
her advice and guidance. I am grateful to Dr. Rolf Färe for helping me think critically and
asking fundamental questions about my research. His insights and comments about my
research were invaluable. I appreciate the feedback from Dr. Patrick Emerson about my
research; his interest and suggestions helped me develop confidence in my research. My
sincere thanks also go out to Dr. Raymond Brooks. He contributed generously to the
development of ideas in my thesis. I would like to express my gratitude to Dr. Daniel
Stone who was instrumental in helping obtain data for Chapter 3. I am grateful to Dr.
Todd Pugatch for his helpful suggestions on my research and for providing new ideas
from time to time. My thanks also go out to Dr. Carlos Martins and Dr. Santosh Mishra
who made sure that I had the basic tools to perform econometric research. I am grateful
to the Department of Economics for their financial assistance and thank the staff
members Barbara, Laura, Lisa, Janet, Patty and Megan.
I sincerely thank my wife Rashmi; this thesis would not be possible without her
love and support. I gratefully acknowledge my mom and dad, my daughter Trisha, my
brother Vrijendra, sister Indrayani and my parents-in-law for their moral support.
Without their love and sacrifices, this dissertation could not have been completed.
CONTRIBUTION OF AUTHORS
Dr. Victor J. Tremblay provided ideas and assistance in all aspects of this
dissertation. Dr. Wesley W. Wilson helped in modeling for Chapter 3.
TABLE OF CONTENTS
Page
Chapter 1 The Behavior of Economic Agents and Market Performance .....................1
Chapter 2 Competition and Price Wars in the U.S. Brewing Industry .........................3
Chapter 3 Product Life Cycles: New Products, Quality and Advertising in the
Movie Market .............................................................................................28
Chapter 4 The Effect on Stockholder Wealth of Product Recalls and
Government Action: The Case of Toyota’s Accelerator Pedal
Recall .........................................................................................................50
Chapter 5 Conclusion .................................................................................................77
Bibliography ....................................................................................................................80
Chapter 2 References .................................................................................................... 80
Chapter 3 References .................................................................................................... 83
Chapter 4 References .................................................................................................... 88
Appendices ........................................................................................................................ 92
Appendix A Regression Results for Movie Sales with Interacted Weekly
Dummy ................................................................................................92
Appendix B Abnormal Returns and Cumulative Abnormal Returns for Four
Events of Toyota with Twenty One Day Event Window ....................98
Appendix C Significance Levels of Abnormal Returns for Toyota Reported
with Rank Test ...................................................................................100