The Law of One Price and a Theory of the Firm: A Ricardian Perspective on Interindustry Wages

Mehta, Shailendra Raj

doi:10.2307/2555819

Cited by 20 publications

(16 citation statements)

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“…This result is puzzling from the point of view of the standard economic theory of competitive labor markets, which would imply that the same individual placed in the same type of job should be paid the same wage (see Mehta 1998). I provide evidence of the intermediary's ability to transfer price constraints from buyers to sellers by showing how the discounts offered to more valued clients, rather than reducing the amount of the intermediary's commission, are transferred on to the workers who are assigned to those projects.…”

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confidence: 99%

Who Pays the Price of Brokerage? Transferring Constraint through Price Setting in the Staffing Sector

Fernandez‐Mateo

2007

Am Sociol Rev

127

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This article analyzes how a broker's ability to affect prices and extract superior value from its position has economic consequences for the actors tied to it. I argue that intermediaries may exercise partial control in price setting by transferring the price constraints imposed on them by the actors on one side of the market to those on the other side. In so doing, they generate unequal returns for the brokered parties, who then receive different prices due to the nature of the tie between the broker and its other exchange partners. I investigate this argument using a novel mix of quantitative and qualitative data gathered from an intermediary in the staffing sector. The results show that the broker is able to transfer discounts offered to valued buyers (clients) on to the sellers (workers) matched with them, instead of reducing its own margins. As a result, actors with the same resource endowments receive different prices depending on the relationships among other exchange partners in a given triadic network of ties. Using qualitative fieldwork, I elaborate on the mechanisms that make the quantitative results feasible, and I discuss the implications for our understanding of the processes, dynamics, and market stratification consequences of brokerage.

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confidence: 99%

Who Pays the Price of Brokerage? Transferring Constraint through Price Setting in the Staffing Sector

Fernandez‐Mateo

2007

Am Sociol Rev

127

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“…Though this is a proxy for the theoretical variable of span of control developed by Williamson (1967) and Mehta (1998), it is interesting that this variable is correlated with such an obvious coordinating activity as price setting. The large value of the parameter estimate should be interpreted with caution as it is a proxy for hierarchies; however, it does imply that the smaller the span of control (the fewer employees each vice-president supervises) the more frequently the prices change.…”

Section: Estimation Results and Interpretationmentioning

confidence: 99%

“…Hierarchical delays are composed of decision costs and delays in transmitting information. Also, earlier research has suggested that the smaller the span of control in an organization the more emphasis managers may place on coordination (Williamson, 1967;Mehta, 1998). Each of the variables derives from these concepts.…”

Section: Alternate Theories Of Price Stickinessmentioning

confidence: 99%

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Hierarchical delays as a source of nominal price rigidities: evidence from the microcomputer industry

Hicks

2007

Manage Decis Econ

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The non-market clearing models of New Keynesian macroeconomic theory rely heavily upon sticky prices to generate business cycle activity following monetary shocks. The dominant theoretical explanations for sticky prices assume a degree of market power in the representative firm (e.g. Mankiw, 1985. Quarterly J. Econ. 100 (2): 529-538). Thus, an important element of empirical research is the exploration of sticky prices within more competitive industries. The importance of this analysis is in establishing the potential degree of price stickiness in a representative firm employed in a macroeconomic model. Among the many theoretical explanations of nominal rigidities are the existence of hierarchical delays (Blinder, 1991. Amer. Econ. Rev. 72 : 334-348) and decision costs (Tommasi, 1992. Optimal Pricing, Inflation, And The Cost of Price Adjustment, 485-511). Both theories rely on the simple notion that managerial inefficiency, high costs of making decisions and sluggish transmission of information lead to price stickiness. This paper investigates the market for microcomputers in the United States from 1993 to 1995 finding strong evidence of nominal price rigidities attributable to hierarchical delays. Alternate explanations for these rigidities are explored and rejected. These prices are sticky in a monopolistically or workably competitive industry, which provides important additional support for the New Keynesian interpretation. Ordinary least squares, a Poisson count and negative binomial count models are employed in establishing the existence of hierarchical delays. Conclusions are offered regarding the appropriate selection of the characteristics of the representative firm in macroeconomic models. Copyright © 2007 John Wiley & Sons, Ltd.

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“…Regarding monitoring cost, in the literature of industrial organization, it is usually assumed to be increasing in both the monitoring accuracy a(m) and the number of workers supervised (the extensity of monitoring) (Mehta, 1998). However, it turns out that the latter complicates the calculations but does not add much new insight in our model.…”

Section: Monitoring Costmentioning

confidence: 99%

Saving good jobs from global competition by rewarding quality and efforts

Wang

Zhao

2015

Journal of International Economics

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The Law of One Price and a Theory of the Firm: A Ricardian Perspective on Interindustry Wages

Cited by 20 publications

References 21 publications

Who Pays the Price of Brokerage? Transferring Constraint through Price Setting in the Staffing Sector

Who Pays the Price of Brokerage? Transferring Constraint through Price Setting in the Staffing Sector

Hierarchical delays as a source of nominal price rigidities: evidence from the microcomputer industry

Saving good jobs from global competition by rewarding quality and efforts

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