Audit pricing and product differentiation in small private firms : evidence from Thailand

Purpose – There is limited evidence on how differences in economic environments affect the demand for and supply of auditing. Research on audit pricing has mainly focused on large client markets in developed economies; in contrast, the purpose of this paper is to focus on the small client segment in the emerging economy of Thailand which offers a choice between auditors of two different qualities. Design/methodology/approach – This paper is based on a random stratified sample of small clients in Thailand qualifying for audit exemption. The final sample consists of 1,950 firm-year observations for 2002-2006. Findings – The authors find evidence of product differentiation in the small client market, suggesting that small firms view certified public accountants as superior and pay a premium for their services. The authors also find that audit fees have a positive significant association with leverage, metropolitan location and client size. Audit risk and audit opinion are not, however, significantly associated with audit fees. Furthermore, the authors find no evidence that clients whose financial year ends in the auditors’ busy period pay significantly higher audit fees, and auditors engage in low-balling on initial engagements to attract audit clients. Research limitations/implications – The research shows the importance of exploring actual decisions regarding audit practice and audit pricing in different institutional and organizational settings. Originality/value – The paper extends the literature from developed economies and large/listed market setting to the emerging economy and small client market setting. As far as the authors are aware, this is the first paper to examine audit pricing in the small client market in an emerging economy.

Tax principles, product differentiation and the nature of competition

We analyze the choice between the origin and destination principles of taxation when there is product differentiation and Bertrand competition. If taxes are redistributed to consumers and demand is linear the origin principle dominates the destination principle whatever the degree of product differentiation and extent of economic integration. With nonlinear demand the origin principle dominates if there is sufficient economic integration. When the social value assigned to tax revenue is higher than the private value, the destination principle dominates for intermediate values of product differentiation and economic integration. The same results are also shown to hold with Cournot competition.

Collusion in a Bertrand duopoly model with decreasing returns and product differentiation

We study cartel stability in a differentiated price-setting duopoly with returns to scale. We show that a cartel may be equally stable in the presence of lower differentiation, provided that the decreasing returns parameter is high. In addition we demonstrate that for a given factor of discount, there are technologies that can have decreasing returns to scale where the cartel always is stable independent of the differentiation degree.

Chapter 5 Product Differentiation versus Geographical Differentiation: Evidence from the Pork Processing Industry in China

This chapter attempts to identify whether product differentiation or geographical differentiation is the main source of profit for firms in developing economies by employing a simple idea from the recently developed method of empirical industrial organization. Theoretically, location choice and product choice have been considered as analogues in differentiation, but in the real world, which of these strategies is chosen will result in an immense difference in firm behavior and in the development process of the industry. Development of the technique of empirical industrial organization enabled us to identify market outcomes with endogeneity. A typical case is the market outcome with differentiation, where price or product choice is endogenously determined. Our original survey contains data on market location, differences in product types, and price. The results show that product differentiation rather than geographical differentiation mitigates pressure on price competition, but 70 per cent secures geographical monopoly.

Non -traded goods, product differentiation and integration of factor markets

This research sought to determine the implications of a non-traded differentiated commodity produced with increasing returns to scale, for the welfare of countries that allowed free international migration. We developed two- and three-country Ricardian models in which labor was the only factor of production. The countries traded freely in homogeneous goods produced with constant returns to scale. Each also had a non-traded differentiated good sector where production took place using increasing returns to scale technology. Then we allowed for free international migration between two of the countries and observed what happened to welfare in both countries as indicated by their per capita utilities in the new equilibrium relative to their pre-migration utilities. ^ Preferences of consumers were represented by a two-tier utility function [Dixit and Stiglitz 1977]. As migration took place it impacted utility in two ways. The expanding country enjoyed the positive effect of increased product diversity in the non-traded good sector. However, it also suffered adverse terms-of-trade as its production cost declined. The converse was true for the contracting country. To determine the net impact on welfare we derived indirect per capita utility functions of the countries algebraically and graphically. Then we juxtaposed the graphs of the utility functions to obtain possible general equilibria. These we used to observe the welfare outcomes. ^ We found that the most likely outcomes were either that both countries gained, or one country lost while the other gained. We were, however, able to generate cases where both countries lost as a result of allowing free inter-country migration. This was most likely to happen when the shares of income spent on each country's export good differed significantly. In the three country world when we allowed two of the countries to engage in preferential trading arrangements while imposing a prohibitive tariff on imports from the third country welfare of the partner countries declined. When inter-union migration was permitted welfare declined even further. This we showed was due to the presence of the non-traded good sector. ^

Losses from Horizontal Merger: an Extension to a Successive Oligopoly Model with Product Differentiation

This paper generalizes the model of Salant et al. (1983; Quarterly Journal of Economics, Vol. 98, pp. 185–199) to a successive oligopoly model with product differentiation. Upstream firms produce differentiated goods, retailers compete in quantities, and supply contracts are linear. We show that if retailers buy from all producers, downstream mergers do not affect wholesale prices. Our result replicates that of Salant's, where mergers are not profitable unless the size of the merged firm exceeds 80 per cent of the industry. This result is robust to the type of competition.

Impact of energy-using product policies

Energy-using products (EuPs), such as domestic appliances, audio-visual and ICT equipment contribute significantly to CO2 emissions, both in the domestic and non-domestic sectors. Policies that encourage the use of more energy efficient products can therefore generate significant reductions in overall energy consumption and hence, CO2 emissions. To the extent that these policies cause an increase the average production cost of EuPs, they may impose economic costs on producers, or on consumers, or on both. In this theoretical paper, an adaptation of a simple vertical product differentiation model – in which products are characterised in terms of their quality and their energy consumption – is used to analyse the impact of the different EuP polices on product innovation and to assess the resultant economic impacts on producers and consumers. It is shown that whereas the imposition of a binding product standard for energy efficiency unambiguously reduces aggregate profit and increases the average market price in the absence of any learning effects, the introduction or strengthening of demand-side measures (such as energy labelling) may reduce, or increase, aggregate profit. Even in the case where the overall impact is unambiguously negative, the effects of product innovation and learning can be in either direction.

The impact of price promotions on producer strategies in markets with large product heterogeneity

Although current research indicates that increasing the number of options has negative effects on the cognitive ability of consumers, little understanding has been given to the consequences on producers and their strategic behavior. This article tests whether a large portfolio of products is beneficial to producers by observing UK consumer response to price promotions. The article shows that discounts induce mainly segment switching (74% of the total impact), with a limited effect on stockpiling (26%) and no impact on purchase incidence. Consequently, consumers prefer to “follow the discount” rather than purchase multiple units of the same wine. This result seems to explain the current structure of the market, and suggests that discounts may conflict with segment loyalty, a situation that disfavors producers, particularly in very populated segments. Results also casts doubts on the economic sustainability of competition based on an intense product differentiation in the wine sector.

New product development in brazilian technology-based small and medium enterprises

This article examines new product development (NPD) in small and medium-sized Brazilian enterprises (SMEs) in two technology-based industries: medical devices and process control automation devices. A conceptual model that categorizes factors that contribute to the success of a new product was established. The data were collected from a sample of 62 Brazilian SMEs. The conceptual model was tested to examine the relationships between NPD practices and new product success. Data analysis reveals that new product success in medical device companies is related to organizational characteristics such as NPD proficiency and marketing skills; while in process control automation device companies, they deal in a large degree with product differentiation, innovation and capability to analyze the targeted market. Due to the relatively small sample size, caution should be exercised when interpreting the results.

Motivations for servitization:the impact of product complexity

Purpose – The purpose of this paper is to identify the commonalities and differences in manufacturers’ motivations to servitise. Design/methodology/approach – UK study based on interviews with 40 managers in 25 companies in 12 sectors. Using the concept of product complexity, sectors were grouped using the Complex Products and Systems (CoPS) typology: non-complex products, complex products and systems. Findings – Motivations to servitise were categorised as competitive, demand based (i.e. derived from the customer) or economic. Motivations to servitise vary according to product complexity, although cost savings and improved service quality appear important demand-based motivations for all manufacturers. Non-complex product manufacturers also focus on services to help product differentiation. For CoPS manufacturers, both risk reduction and developing a new revenue stream were important motivations. For uniquely complex product manufacturers, stabilising revenue and increased profitability were strong motivations. For uniquely systems manufacturers, customers sought business transformation, whilst new service business models were also identified. Research limitations/implications – Using the CoPS typology, this study delineates motivations to servitise by sector. The findings show varying motivations to servitise as product complexity increases, although some motivational commonality existed across all groups. Manufacturers may have products of differing complexity within their portfolio. To overcome this limitation the unit of analysis was the strategic business unit. Practical implications – Managers can reflect on and benchmark their motivation for, and opportunities from, servitisation, by considering product complexity. Originality/value – The first study to categorise servitisation motivations by product complexity. Identifying that some customers of systems manufacturers seek business transformation through outsourcing.

Strawberry breeding in a subtropical environment

Strawberry breeding aims to provide cultivars that maximise consumer satisfaction and producer profitability in a changing environment. In this paper some concepts of profitability, consumer satisfaction and sustainability are explored for a subtropical climate using Queensland Australia, and Florida USA, as examples. The typical production environment is annual autumn planting of bare rooted runners into polythene covered raised beds at about 40000 plants/ha. Harvesting is late autumn to early spring, with fruit arriving at the major markets up to 2000km away from the production area within 1-4 days of harvest. The basic premise in the breed-big work is that consumers must enjoy the experience of eating strawberries, and that perceived flavour, sweetness, and juiciness are the major contributors to this experience. Using market chain information, we developed a basic value model comprised of costs, returns, and sustainability of market. To this basic outline are applied operational descriptors, such as 'speed of harvest', and associated plant characteristics, such as 'fruit display'. The expression of each plant characteristic is ascribed a value or level and together numerically describe the phenotype. This description is mathematically manipulated to provide a 'value index' for the cultivar. Nine cultivars including 'Strawberry Festival', 'Kabarla', 'DPI Rubygem' and 'Sweet Charlie' are described, and environmental issues that may impact on the subtropical strawberry breeding objectives are discussed. Product differentiation and the use of exotic germplasm as a new source of genes for flavour and resistance to disease and environmental stress will likely be the cornerstones of future progress in subtropical strawberry breeding. This approach should satisfy both consumers and producers.

Strategic Priorities, Company Performance and Attitudes Towards Management Accounting Techniques: an Empirical Study

The study investigates whether there is an association between different combinations of emphasis on generic strategies (product differentiation and cost efficiency) and perceived usefulness of management accounting techniques. Previous research has found that cost leadership is associated with traditional accounting techniques and product differentiation with a variety of modern management accounting approaches. The present study focuses on the possible existence of a strategy that mixes these generic strategies. The empirical results suggest that (a) there is no difference in the attitudes towards the usefulness of traditional management accounting techniques between companies that adhere either to a single strategy or a mixed strategy; (b) there is no difference in the attitudes towards modern and traditional techniques between companies that adhere to a single strategy, whether this is product differentiation or cost efficiency, and c) companies that favour a mixed strategy seem to have a more positive attitude towards modern techniques than companies adhering to a single strategy

Two-part tariff licensing mechanisms

Most of the patent licensing agreements that are observed include royalties, in particular per-unit or ad valorem royalties. This paper shows that in a differ entiated duopoly that competes á la Cournot the optimal contract for an internal patentee always includes a positive royalty. Moreover, we show that the patentee would prefer to use ad valorem royalties rather than per-unit royalties when goods are complements or when they are substitutes and the degree of differentiation is suffciently low. The reason is that by including an ad valorem royalty in the licensing contract the patentee can commit strategically to be more (less) aggressive when goods are complements (substitutes) since his licensing revenues become increasing with the price of output of his rival. As a result, licensing may hurt consumers although it always increases social welfare.

An appraisal of the efficiency of fish marketing system in Lake Chad basin

Fish products from the Chad Basin Lake play important role in meeting fish protein needs of Nigeria: they contribute not less than 25% of the total domestic fish supply and are significant in determining the availability of processed products and reduction of post-harvest losses. Processors, marketers and consumers are the major actors in appraising a marketing system. The results show that most sellers (4-7.5%) are within the age range of 30-39 years. Desires for more earnings led the markets to diversify their business activities to food stuff trading (37.5%), dried meat/livestock sales (37.5%), farming (12.5%), and transportation (12.5%). 65% of traders dispose off their products mostly in the mornings and evenings, 70% of the products are sold smoked while 50% of products are sold to individual consumers. Lake Chad fish products have a long distribution chain. There is also a high degree of buyers and sellers concentration in the primary fish markets and secondary (urban) markets. The products have a vertical regional movement with southern traders (82.5%) dominating the business, thus making the products popular all over Nigeria. Product differentiation with imperfect pricing policy is common occurrence. Lake Chad fish marketing system has distortions that impede its efficiency, recommendations are made on how to ensure a better efficiency of the system