First Look

January 3, 2007

Can higher prices stimulate more intensive product use? The question, as counterintuitive as it sounds, is a central part of research looking at how to price health products in the developing world. A new HBS working paper looks at field results in Zambia. The specific question under study: Would charging a higher price for a home water purification solution system create more use and thus greater health benefits? Another working paper examines the effect that banking deregulation has had on generating more start-up activity, and Jay Lorsch writes a book chapter on governance information in knowledge-based companies. A new case study investigates the branding issues face by French winemaker Chateau Margaux.
— Sean Silverthorne

Working Papers

Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia


The pricing of health products in the developing world has become a center of controversy among policymakers, with important implications for the efficient targeting of social programs more generally. A key issue in this debate is whether higher purchase prices lead to more intensive product use and, therefore, greater health benefits. We present results from an experiment in Lusaka, Zambia, designed to test whether charging more for a home water purification solution results in more use of the product. Our methodology separates the screening effect of prices (charging more changes the mix of buyers) from the causal effect of prices (charging more stimulates greater use for a given buyer). We find that higher prices screen out less-intensive users of the product. High prices do not cause greater product use than low prices for a given buyer, but there is some evidence that the act of paying increases use. Our estimates imply that positive prices may be optimal even if maximizing use is the sole objective.

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Banking Deregulation, Financial Constraints, and Entrepreneurship


We study how U.S. branch banking deregulations affected the entry of new firms in the non-financial sector using establishment-level data from the U.S. Census Bureau's Longitudinal Business Database. The comprehensive micro-data allow us to study how both the entry rate and the distribution of entry sizes for new startups responded to changes in banking competition. Moreover, we distinguish the relative effect of the policy reforms on the entry of startups compared to the opening of new establishments by existing firms. We find interstate banking deregulations had a strong positive effect on the birth of new firms relative to the facility expansions of existing firms. We find limited evidence that the intrastate banking deregulations influenced entry. Our results have implications for existing theories of financial constraints for entrepreneurs, as well as research looking at the effect of banking competition on the efficient allocation of capital.

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Cases & Course Materials

3i Group plc: May 2006

Harvard Business School Case 807-006

Since 2004, Philip Yea, the first outsider ever to lead 3i Group, one of Europe's largest publicly listed private equity firms, has been trying to help the far-flung organization become more of a streamlined partnership even as it functions around the globe. As he considers 3i's performance through the first quarter of 2006 (3i's fiscal year 2006), he must balance his satisfaction at the firm's results and progress in the recent buoyant market with the question of whether the firm's people, strategy, and goals are sufficiently aligned that it can survive and prosper in the coming market correction.

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Centre Partners—American Seafoods 2003

Harvard Business School Case 207-077

Centre Partners, a leading private equity firm, is contemplating ways to realize liquidity from its successful investment in American Seafoods Corp., Inc. An apparently innovative solution is developed, which calls for issuing Income Deposit Securities. Does this innovation make sense, and is it practical?

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Harvard Business School Case 207-057

Examines an acquisition in the highly competitive new media advertising industry in China in late 2005. The transaction leads to eventual consolidation of the industry and a positive stock market reaction. Discusses valuation in the context of an M&A transaction in an emerging economy and the role of private equity and venture capital in the development and the eventual consolidation of the new media advertising industry. Provides a context in which to discuss antitrust regulation, or lack there of, on an industrial organization in China.

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Japan Communications, Inc.

Harvard Business School Case 805-119

In 2001, Seiji Frank Sanda is facing his worst crisis since founding Japan Communications Inc. (JCI) in 1996. His planned IPO was stopped, leaving JCI with a large organization and strong revenues, but losses and a dwindling balance sheet. He is seriously considering severe personnel cuts; however, layoffs in Japan may cause severe damage to his reputation and make it difficult to hire people in the future. Furthermore, JCI is facing decisions regarding implementation of its business strategy, wondering if now is the time to diversify its service offerings.

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Kendall Square Research Corp.

Harvard Business School Case 307-010

Kendall Square Research was a small competitor in the supercomputer industry. Sales grew rapidly in 1992 and early 1993 and the company sold stock to the public for the first time. Analysts forecast higher earnings for 1993, then the company's revenue recognition practices were questioned and the answers were devastating.

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Lincoln Electric

Harvard Business School Case 707-445

The case describes Lincoln Electric's business strategy and incentive system, and it discusses the global strategy choices that the company faces going forward. Lincoln Electric is deciding whether a strong push into India should be the next step in the company's globalization. The company has enjoyed increasing success in China as a result of its aggressive expansion through both a joint venture and set of majority-owned plants. The company is deciding how it could apply the lessons of the Chinese experience, as well as the lessons of its experience across Asia, Europe, and Latin America, to India. First of all, should Lincoln Electric own a manufacturing operation in India? If yes, Lincoln Electric could enter the India market by acquisition, by joint venture, or by building a new plant on its own. If the company were to enter by acquisition, it was unclear what type of valuation to apply to any of the Indian incumbent companies. If the company were to enter by joint venture, the question was: How could Lincoln ensure its ability to make key business decisions? If the company were to build its own plant, the question was: Would the cost of starting from scratch be more than sufficiently compensated by the total control the company would enjoy?

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Marketing Chateau Margaux

Harvard Business School Case 507-033

Chateau Margaux, luxury brand or connoisseur brand? Although France is awash with unsold wine, demand has never been stronger for the very finest Bordeaux. How should Margaux sustain and grow its business? The Chateau management team is wondering if it can take more control of distribution instead of leaving it to the Bordeaux wine merchants. Also, can the Chateau build marketing and sales capabilities on its own? Who is the target market, wine connoisseurs or the newly rich? Corinne Mentzelopoulous, who took over the estate from her father in 1980, wonders whether a new lower-priced wine should be added to the portfolio.

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Philips Electronics NV

Harvard Business School Case 407-047

Looks at the multinational company, Philips Electronics, which is headquartered in the Netherlands, as an example of a company with a two-tiered board. The company is governed by both a supervisory board and a board of management. Examines the role, dynamic, and best practices of each of the two boards. Additionally, the case examines the relationship between the two boards and the key factors in determining that relationship.

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Sell Yourself!

Harvard Business School Exercise 507-045

Helps students develop an effective sales pitch for their greatest asset—themselves. Also, broadens their understanding of how salespeople sell products and services. Before class, students are asked to interview a potential employer and to develop a preliminary sales pitch. Once in class, students work through an exercise that helps them refine the sales pitch and better understand several key marketing principles. Leads to an engaging and thought-provoking discussion.

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Selling Biovail Short

Harvard Business School Case 207-071

Hedge fund SAC Capital and analysts from Gradient Analytics and Banc of America face charges of stock price manipulation from Biovail, a Canadian pharmaceutical company. Gradient and BofA produced negative reports on Biovail's earnings quality. At the same time, SAC built a large short position in the stock. The defendants must consider specific and general strategic responses to these allegations.

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VMware, Inc.

Harvard Business School Case 707-013

VMware, Inc., the first company to crack the software virtualization market, faces new challenges from competitors' plans to bundle free virtualization solutions in operating systems. VMware, acquired by data storage giant EMC Corp. in 2003, has delivered top-line growth from 2002 to 2005 that is comparable to the fastest-growing enterprise software companies in history. However, emerging competitive solutions from Microsoft and the open-source community threaten to hinder the company's long-term growth potential. Outlines virtualization technology and the dynamics that affect its market; covers the history of VMware; discusses key competitors; and analyzes potential strategic responses by VMware to emerging competitive threats.

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Getting Unstuck: How Dead Ends Become New Paths


You will experience psychological impasse many times in your life. During these times, you have the sensation that you're stuck or paralyzed. You're convinced that something must change, whether in your work or personal life. Though this feeling is normal, you need to move beyond it. Failure to "get unstuck" can put your career and personal life—as well as the healthy functioning of your team or organization—at risk. In Getting Unstuck, business psychologist and researcher Timothy Butler offers strategies for moving beyond a career or personal-life impasse—by recognizing the state of impasse, awakening your imagination, recognizing patterns of meaning in your life, and taking action for change. Drawing on a wealth of stories about individuals who have successfully transitioned out of impasses, Getting Unstuck provides a practical, authoritative road map for moving past your immediate impasse—and defining a meaningful path forward.

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The Effect of Dividends on Consumption


Classical models predict that the division of stock returns into dividends and capital appreciation does not affect investor consumption patterns, while mental accounting and other economic frictions predict that investors have a higher propensity to consume from stock returns in the form of dividends. Using two micro data sets, we show that investors are indeed far more likely to consume from dividends than capital gains. In the Consumer Expenditure Survey, household consumption increases with dividend income, controlling for total wealth, total portfolio returns, and other sources of income. In a sample of household investment accounts data from a brokerage, net withdrawals from the accounts increase one-for-one with ordinary dividends of moderate size, controlling for total portfolio returns, and also increase with mutual fund and special dividends. We comment on several potential explanations for the results.

Governance Information in Knowledge-Based Companies


In his chapter about corporate governance, Jay Lorsch develops his insights into how to audit knowledge assets (avoiding its deterioration), human resources and corporate activities.

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