EDITORIAL

DANIEL F. SPULBER
Northwestern University

1. SCOPE OF THE JOURNAL

           The Journal of Economics & Management Strategy (JEMS) focuses on the application of economic analysis to the study of the competitive strategies and the organizational design of firms. The journal is based on the proposition that economics has much to contribute to business decision making and that in turn the study of microeconomics can be greatly strengthened by the consideration of practical issues in management strategy.
           The journal emphasizes rigorous modeling using economic theory and econometric analysis. The journal is a complement to other strategy journals that take a more applied approach or, in some cases, a more traditional view of management strategy. Articles in JEMS include intuitive explanations and examples applied to specific industries that broaden the potential audience. JEMS is a research forum for economists not only in economics departments but also in business schools, including departments of accounting, finance, management strategy, marketing, and organization behavior. In addition, the journal serves as a valuable resource for managers and managerial consultants seeking up-to-date research on management strategy. The journal provides practitioners a means of access to innovative economic research on the theory of the firm.

2. RESEARCH AREAS

           JEMS concentrates on the theoretical and empirical analysis of the competitive strategies of firms and the organizational design of firms. The journal publishes papers in such economic areas as industrial organization, organization theory, game theory, health economics, international trade, labor, law and economics, and regulation. In addition, the journal publishes papers on economic analysis in cognate areas of management including accounting, finance, marketing, and organization behavior. A connecting link between these diverse subject areas is the development of the economic theory of the firm. To emphasize the related points of interest, I will briefly review some of the suggested research areas.
           Important advances in industrial organization have enhanced our understanding of how firms select optimal competitive strategies in equilibrium. This has been made possible in large part through the application of game theory to the study of competition. The types of strategic actions studied in industrial organization include pricing policies, output levels, contract terms, product quality and durability, investment dynamics, and research and development. Progress in analyzing competition has been made using models in which consumers and firms possess asymmetric information about costs or demand such as nonlinear pricing models or signaling models of limit pricing. In addition, dynamic games have allowed important extension of static pricing, investment, and entry models. Significant developments have also occurred in the application of econometrics to test models of industrial organization, particularly in industry studies. JEMS publishes theoretical papers in industrial organization, econometric analyses of the competitive behavior and equilibrium strategies of firms in particular industries, and experimental analyses of management strategy and decision making.
           The economic theory of organizations examines the determinants of vertical integration, including imperfect competition, incomplete contracts, uncertainty, and incomplete information. Work on the economics of information has examined the consequences of moral hazard in market contracts and within organizations. Communication in organizations and also the design of incentives are being examined using game theory. The principal-agent model has been developed and extended in a variety of ways including multiple agents, multiple principals, long-term relationships and the principal-supervisor-agent model. These extensions provide powerful new approaches to addressing difficult questions in management JEMS publishes theoretical and empirical papers on organizational structure and design and the practical implications for management.
           Managers often are concerned with the implications of legal restrictions on economic activity. Contract rules affect the nature of interactions between the firm and its suppliers, thus affecting decisions about vertical integration. Contract rules also affect the firm’s transactions with customers, including decisions about performance and investment in reliance. The many developments in the theory of contracts have far-reaching consequences for the study of firms. The Nobel Prize winner Ronald Coase provided the insight that the scope of the firm’s activities depends to a great extent on relative transaction costs of market exchange versus internal contracting. Coase’s work led to the development of a theory of transaction costs and organizations, with particular emphasis on vertical integration and the structure of the firm. A large body of subsequent research is providing the outlines of a contractual model of the firm. JEMS welcomes work on the firm in the area of contracts and transaction costs. JEMS will be pleased to publish innovative analysis of the effects of law on economic transactions and on the organization of firms.
           The new theory of international trade includes many elements of industrial organization, particularly in the analysis of imperfect competition in international markets. The competitive strategies of firms now play an important role in the economic theory of international trade. This research has been stimulated by the growing intensity of international competition and its consequences for the performance of established firms. There is growing interest in the strategic decision making of international business. JEMS publishes research on competitive strategy in international business.
           Antitrust law and enforcement place important restrictions on the competitive strategies of firms. Restrictions on monopolization and collusion affect pricing and marketing actions, customer contracts, the formation of joint ventures, and the exchange of information between firms. Rules on price discrimination can affect the pricing policies of firms including quantity discounts, targeted discounts, product bundling, and market segmentation. Marketing plans are influenced by antitrust rules regarding exclusive dealing, tying contracts, resale price maintenance, territorial restrictions, and other trade practices. The evolution and scope of firms often is affected by antitrust policies toward horizontal, vertical, and conglomerate mergers. JEMS publishes papers on antitrust law and its consequences for management strategy. Emphasis will be placed on the equilibrium effects of antitrust on the strategies of firms and on the endogenous determination of public policy in equilibrium. Econometric studies of the effects of antitrust law and enforcement on competitive strategies are also of particular interest.
           Government regulation creates many constraints and opportunities for firms. Every industry is subject to a wide variety of regulations including price controls, entry restrictions, licensing and patent requirements, product quality and safety regulations, workplace health and safety regulations, and environmental pollution regulations. These regulations restrict the actions of firms and can entail high compliance costs. For example, estimates of the annual costs of compliance with pollution regulation exceed $120 billion. Some forms of regulation create competitive opportunities. For example, firms can gain competitive advantage from the imposition of some regulation by the government if their costs of compliance are below those of rival firms. In addition, firms may differentiate their products by noting their qualities in relation to regulatory standards. For example, firms have achieved enhanced sales and increased financial backing by advertising their product’s benign effects on the environment (“green marketing” and “green investing”). Firms can also benefit from changes in market demand induced by regulation, for example, by changing the characteristics of products in response to labeling requirements. JEMS encourages theoretical and empirical papers that examine the economic effects of government regulation. The endogenous determination of firm strategies and regulatory policies within equilibrium market models is of particular interest. The discussion should provide some analysis of the effects of regulation on the equilibrium strategies of firms rather than providing strictly a social welfare analysis of public policy.

3. MANAGEMENT STRATEGY

           Management strategy is concerned with practical decisions faced by the managers of companies as they seek competitive advantage over rival firms. In association with profit maximization, the goals of the firm might include entry into new markets, increase in market share, growth or survival of the firm, or vertical expansion. Strategies for achieving these goals include pricing policies, investment expenditures, new product innovation, enhanced product quality, cost reduction and process innovation, supplier contracts, marketing plans, and financing methods. In addition, the managers of the firm may seek to change its internal organization and incentive structure to attain particular objectives. Finally, the managers of the firms may make detailed plans to implement the chosen strategies over time.
           The study of management strategy can play a role in managerial decision making by presenting alternative policy options, examining the expected consequences of alternative competitive strategies using market models, and recommending particular strategies based on their efficacy in achieving the firm’s goals at the market equilibrium. Therefore, management strategy has a crucial normative component.
           There is a long tradition in economics of advising public policy makers; indeed for most economists, the word policy is synonymous with public policy. Thus, each area of economics has an important public policy component. Economists have devoted considerable attention to international trade policy, fiscal policy, monetary policy, employment policy. Public finance and economic development are generally directed toward government policy. The economic analysis of law is concerned with comparing alternative legal institutions from the point of view of aggregate efficiency. The economic analysis of regulation and antitrust apply theories of industrial organization. It is standard for economic research papers to conclude with an analysis of the social welfare implications of firm behavior, market institutions, or government policy. Economists have devoted considerably less attention to the problems that must be solved by managers of firms. However, there is significant scope for economists to contribute to business policy making with the same vigor and insight that they have applied to public policy making. JEMS will publish paper on public policy, particularly those emphasizing the effects of given policies on the strategy of the firm. The endogenous formation of public policy also will be an important consideration.
           The managers of firms must decide what quantity and variety of goods to produce, thus determining the scale and scope of the firm. In addition, managers select product characteristics, the production technology to be used, and the mix of capital, labor and productive inputs. Further, managers establish or modify the organizational structure of the firm, choosing lines of authority and communication, incentives, accounting methods, and other rules. The firm’s managers seek out sources of financing in capital markets, specialized personnel in labor markets, and resources, services, and equipment in factor markets. Finally, the firm’s managers identify potential customers and communicate with them through pricing, sales efforts, and marketing channels.
           Management strategy is often interdisciplinary because the manager is responsible for coordinating the functional areas of the firm, which are generally studied by specialists in accounting, finance, marketing, and organization behavior. Economic theory and econometric analysis of the firm can provide a unifying set of approaches and research methods, or at least a common language. The investigation of applied strategy problems faced by managers can provide a common purpose. Management strategy as a field of study is characterized by a unique set of questions regarding how firms compete and how managers design organizations. The Journal of Economics & Management Strategy continues to help define and extend the field of management strategy.
           The managers of the firm must solve a complex set of problems that involve coordination of accounting, financing, and marketing decisions. JEMS strongly encourages the submission of economic research in these areas.

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