The article discusses a study which examined the effect of fixed-price regulation on cost elasticity and cost asymmetry. The effect of ownership on firms' adjustments to cost elasticity and cost asymmetry in response to price regulation is explored. Aside from examining whether the change in regulation influences cost elasticity, analyses explored the effect of a change in regulation on the asymmetric behavior cost. The data used, provided by the German Federal Statistical Office, consist of a random sample of 70 percent of the entire population of German hospitals for the years 1993-2008. Results emphasizes the necessity to distinguish between upward and downward changes in cost elasticity when examining cost behavior..

ABSTRACT A large stream of work on relative performance evaluation highlights the benefits of using information about peer performance in contracting. In contrast, the potential costs of discouraging cooperation among peers have received much less attention. The purpose of our study is to examine how the importance of cooperation affects the use of information about peer performance in target setting, also known as relative target setting. Specifically, we use data from an industrial services company where business unit managers need to share specialized equipment and staff with their peers to manage bottlenecks in their capacity. We construct several empirical proxies for the costs and benefits of information about peer performance and examine their effects on target setting. We find robust evidence that the sensitivity of target revisions to past peer performance is higher when peer group performance has greater capacity to filter out noise but lower when the importance of cooperation among peers is greater.

ABSTRACT We examine whether firms strategically increase cost rigidity to adopt an aggressive product market stance. Using large cuts in industry-level import tariff rates as a setting, we find that domestic firms respond to a looming competitive threat from foreign rivals by raising cost rigidity. This increase cannot plausibly be explained by investments to create physical excess capacity, suggesting firms enter cost commitments for labor and procurement instead. Additional tests corroborate the hypothesized preemptive intent. First, the increase in cost rigidity is concentrated in industries in which a firm’s aggressive market stance elicits a softening of competition. Second, it is only in these industries that firms with rigid cost structures experience market share gains around a large tariff cut. The latter effect is more pronounced the more reliably firms’ cost structures can be discerned from their financial statements. Overall, our study suggests that firms enter cost commitments as a preemptive strategy. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: L22; M21; M40; M41.