First Look

April 17, 2007

Does trust confer a competitive advantage? So it seems. In a new working paper available for download, Felix Oberholzer-Gee and a Wharton colleague conduct a field experiment using an innovative new product to see whether trust can act as a barrier to entry. Their results? "[T]rust in current suppliers is negatively related to various measures of interest in the new product." There is also a social cost: "We also find that entrepreneurs from less trusted groups—in this study, African-Americans—find it particularly difficult to overcome the barriers erected by trust." Also new this week: four more working papers for download; the psychological obstacles to sustainability; and a case on how Grupo Bimbo bakers adapt their business recipe for China.
— Martha Lagace

Working Papers

Public Action for Public Goods


This paper focuses on the relationship between public action and access to public goods. It begins by developing a simple model of collective action which is intended to capture the various mechanisms that are discussed in the theoretical literature on collective action. We argue that several of these intuitive theoretical arguments rely on special additional assumptions that are often not made clear. We then review the empirical work based on the predictions of these models of collective action. While the available evidence is generally consistent with these theories, there is a dearth of quality evidence. Moreover, a large part of the variation in access to public goods seems to have nothing to do with the "bottom-up" forces highlighted in these models and instead reflect more "top-down" interventions. We conclude with a discussion of some of the historical evidence on top-down interventions.

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Alignment in Cross-Functional and Cross-Firm Supply Chain Planning


In this paper, we seek to use quantitative models to help appreciate the behavioral processes associated with successful cross-functional and cross-firm alignment in supply/demand planning. We model the interaction between a sales and a manufacturing function within a firm, or between an upstream and downstream firm. We claim that misalignment is costly both to the involved functions/firms and to the rest of the organization or supply chain, and focus the paper on studying the circumstances under which alignment will or will not happen. Using game theory, we find that, although misaligned economic incentives can play a role in explaining misalignment of planning behaviors, there is another important issue to consider: in our setting, the key factor that determines whether two functions or firms can align their planning is how much each party knows about the other's beliefs about demand. Thus, in this paper's setting, improved communication can induce alignment even if no economic incentives are changed. While consistent with the predominant view in organizational behavior (OB), this is a fundamental departure from the extant operations management (OM) literature.

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Media Markets and Localism: Does Local News en Español Boost Hispanic Voter Turnout?


Since the dawn of broadcasting, and especially in the past decade, Americans have turned their attention from local to more distant sources of news and entertainment. While the integration of media markets will raise the private welfare of many consumers, critics of a globalized information and entertainment industry claim that transnational media undermine civic engagement, transforming locally engaged citizens into viewers consuming programming from distant sources. In response to such concerns, many regulatory agencies, including the Federal Communication Commission in the United States, curtail the integration of media markets to promote "localism." To find the right balance between the private benefits of integrated markets and the public value of civic engagement, evidence on the size of the positive spillovers from local media is needed. To date, such evidence is scant. In this paper, we exploit the rapid growth of Hispanic communities in the United States to test whether the presence of local television news affects local civic behavior. Spanish-language local television news programming was available in 25 US metro areas in 2002, up from only 14 areas in 1994. Our estimates indicate that Hispanic voter turnout increased by 5 to 10 percentage points, relative to non-Hispanic voter turnout, in markets where local Spanish-language television news became available. We conclude that the tradeoff between integrated media markets and civic engagement is real. The results of this study provide a basis for the continued pursuit of regulatory policies that promote localism.

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The Speed of New Ideas: Trust, Institutions and the Diffusion of New Products


Trust in buyer-supplier relationships is sometimes regarded as a competitive advantage because trust can increase the gains from trade for firms and their suppliers. In this study, we document a particular type of competitive advantage conferred by trust. Using adoption rates of a new product as a case study, we show that trust protects current suppliers from competitors who offer innovative products. Buyers who trust their current suppliers are less likely to seek information about the new product and they express less interest in purchasing it. Once the product becomes available, they do in fact make fewer purchases. We also find that entrepreneurs from less trusted groups—in this study, African-Americans— find it particularly difficult to overcome the barriers erected by trust. Trust, we conclude, confers competitive advantage by slowing down the diffusion of new ideas and products in the economy. As trust is built up over time, earning a buyer's trust confers a significant first-mover advantage.

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A Perceptions Framework for Categorizing Inventory Policies in Single-stage Inventory Systems


In this paper we propose a perceptions framework for categorizing a range of inventory policies, including optimal inventory policies, that can be employed in a single-stage supply chain. The perceptions framework is based on forecasting with Auto-regressive Integrated Moving Average (ARIMA) time series models within the context of a single stage stochastic inventory system with periodic review, constant leadtimes, infinite supply, full backlogging, linear holding and penalty costs and no ordering costs. Forecasting ARIMA time series requires tracking forecast errors (interpolations) and using these forecast errors and past demand realizations to predict future demand (extrapolating). Categorizing deviations from optimal inventory policies is possible if we allow the perception about demand implied by the interpolations or extrapolations to be different from the actual demand process. We do not use perception in its more conventional sense; we are not making any claims about the actual perception of any manager. Rather the perceptions here serve as a device for modeling and categorizing a range of inventory policies.

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Cases & Course Materials

Brighter Smiles for the Masses—Colgate vs. P&G

Harvard Business School Case 706-435

In 2000, Procter & Gamble Co. introduced Crest Whitestrips, a new, revolutionary product that allowed consumers to whiten their teeth at home. With Whitestrips, P&G created an entire new category in oral care, worth $460 million in 2002. Whitestrips sent P&G's main competitor in oral care, Colgate Palmolive Co., scrambling because several patents protected the strips, making it difficult for Colgate to copy the invention. But in September 2002, the tables turned. Colgate introduced Simply White, a favorably priced whitening product that consumers could simply paint on their teeth. One month after its introduction, Simply White had captured one half of the market, and Crest Whitestrips lost more than 50% of its share. However, P&G's tests of Simply White indicated that Colgate's new product was largely ineffective. Had Colgate just committed a major strategic blunder by introducing a product that did not work? And, if so, how could P&G best take advantage of the situation?

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Brazos Partners and Cheddar's Inc.

Harvard Business School Case 806-069

Randall Fojtasek, a partner at Brazos Private Equity Partners, must decide whether to invest more money in Cheddar's restaurant chain, which the firm invested in 10 months earlier. The incremental investment would fund a real estate subsidiary that would own the property on which Cheddar's built its stores, rather than its traditional approach of sale and leaseback. As he considers the issue, Fojtasek must decide how to price the new stock, how to structure the deal to limit his firm's dilution, and how to manage the personality issues involved.

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Disney Consumer Products: Marketing Nutrition to Children

Harvard Business School Case 507-006

In an effort to capture market share in the children's foods category, Disney Consumer Products (DCP) debuted a broad line of "better for you" foods, ranging from fresh fruits and vegetables to frozen meals, through a partnership with Kroger supermarkets. In answer to a global obesity epidemic, DCP reformulated existing products and introduced new ones which met stringent nutritional requirements. Disney—and by extension, DCP—is highly influential with children: can the company use its "magic" to get children to switch from sugary, processed foods and become lifelong converts to a more nutritious diet? What is the food industry's responsibility in this controversial space?

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Edelnor (A)

Harvard Business School Case 707-473

Fernando del Sol, president of F. S. Inversiones in Chile, had just bought himself a headache as a New Year's present. On December 31, 2001, he purchased a Chilean electricity generation and transmission company called Edelnor that was in danger of becoming insolvent within months. Fernando had six months to restructure the company before it would become completely insolvent, and his headache was compounded by the fact that the process for company reorganization in Chile typically dragged on in the courts, often for two or more years. Any debtor, no matter how small, could hold up the process at any point by issuing written complaints to the court. Fernando needed to figure out whether the company was worth saving, whether it had a business strategy that could succeed if the company's debt was restructured, and whether he could find some means of saving the company in time.

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Edelnor (B)

Harvard Business School Supplement 707-530

Supplements the (A) case.

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Fujifilm: A Second Foundation

Harvard Business School Case 807-137

No abstract available.

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Grupo Bimbo

Harvard Business School Case 707-521

In 2007 Grupo Bimbo, a leading global player in the baking industry, expands into China while at the same time undertaking initiatives to make its U.S. and South American operations more profitable. Allows students to analyze the company's entire global strategy. Places particular attention on how a multinational firm should best adapt to differences in the basic institutions of capitalism and consumer preferences across countries as well as within them.

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Hallstead Jewelers

Harvard Business School Case 107-060

A retail jeweler has relocated to a larger store and is experiencing losses for the first time. Sales and costs have increased along with the breakeven point. Changes in pricing and promotion must be explored. Alternative actions to return to profitability can be considered.

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International Capital Markets and Sovereign Debt: Crisis Avoidance and Resolution

Harvard Business School Note 707-018

Successive economic crises of the 1990s and early 2000s intensified focus on reform of the "international financial architecture." Because many of these crises involved defaults on sovereign bonds, an important component of the discussion revolved around the composition of international capital flows and sovereign debt restructuring. With the official sector, private creditors, and sovereign debtors focused on different issues, proposals surrounding the topic varied widely. Describes some of the proposals and summarizes scholarship on their advantages and disadvantages.

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International Entrepreneurship: Winter Term 2007: Course Overview and Syllabus

Harvard Business School Course Overview 807-123

Explains the mission, philosophy, structure, and classroom and grading policies for the second-year MBA elective International Entrepreneurship.

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Project Finance Acronyms

Harvard Business School Note 207-086

Contains two parts: Part I contains a list of more than 500 acronyms for official institutions and other project finance terms; Part II contains a description of various interest and debt coverage ratios used in the field of project finance.

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Survey Masters LLC

Harvard Business School Case 107-061

A small survey research partnership has reached the point in its growth where it is considering which of its projects are most profitable. Two analyses by its accountant seem to indicate that small projects are more profitable than large projects. However, analysis of activities using activity-based costing reveals otherwise. With this new information, questions about what to do in the future need to be addressed.

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Understanding Industry Structure

Harvard Business School Note 707-493

Examines the structural determinants of industry attractiveness (the Five Forces framework) and the implications of industry structure for strategy.

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Merchant or Two-Sided Platform


This paper provides a first pass at clarifying the economic tradeoffs between two polar strategies for market intermediation: the "merchant" mode, in which the intermediary buys from sellers and resells to buyers; and the "two-sided platform" mode, under which the intermediary enables affiliated sellers to sell directly to affiliated buyers. The merchant mode yields higher profits than the two-sided platform mode when the chicken-and-egg problem due to indirect network effects for the two-sided platform mode is more severe and when the degree of complementarity/substitutability among sellers' products is higher. Conversely, the platform mode is preferred when seller investment incentives are important or when there is asymmetric information regarding seller product quality. We discuss these tradeoffs in the context of several prominent digital intermediaries.

Changing Practices on Sustainability: Understanding and Overcoming the Organizational and Psychological Barriers to Action


At its core, sustainable development requires a change in the way we think as individuals, as organizations and as a society. Yet, what is well understood within the organizational literature is that such changes are difficult and are usually met with resistance. Sustainability is no exception; executives and organizations have been slow to adopt wise practices. In this chapter, we offer insight from both behavioral decision research and organizational theory to explain barriers to change. We identify specific obstacles to the implementation of sustainability initiatives, suggest means of surmounting them and offer direction for diffusing wise practices at a faster rate.


Colorblindness and Diversity: Conflicting Goals in Decisions Influenced by Race

Bias in Jury Selection: Justifying Prohibited Peremptory Challenges

Contingent Political Capital and International Alliances: Evidence from South Korea


Prior research has suggested that a company's ties to political networks carries only two values, positive and zero, while the results of this study suggest that political network ties can also be a significant liability for companies. Analyzing South Korea as a representative emerging economy, I find that being tied through elite sociopolitical networks to the regime in power significantly increased the rate at which South Korean companies formed cross-border strategic alliances, but also that being tied through elite sociopolitical networks to the political enemies of the regime in power significantly decreased that rate. The present study sheds further light on the so-called dark side of embeddedness by focusing on who is negatively targeted by having the "wrong friends" at the wrong time.