I. Term Project Instructions
Note: a. Before submitting the term paper, students will be guided step-by-step as they present each component separately for evaluation by the professor as follows: b. The Industry name and its 6-digit NAICS code, the purpose, and a brief background NOTE: This assignment is not gradable. The assigned grade will indicate whether you have provided the information below. Identify the name of the industry that you will base your term paper on and its corresponding six-digit NAICS code. In a single paragraph, state the following: a) The name of your industry b) The six-digit NAICS code c) How you plan to collect your data (source). See industry access data d) The purpose of your paper e) Brief background of your industry. For example, the purpose of this research paper is to describe an industry in terms of its structure, conduct and performance. A list of possible industries is shown on Page 205 in your textbook. State whether your industry caters to the local and foreign markets. c. The Theoretical section explaining the relationship between Industry performance and each of the explanatory variables of structure and conduct. Theoretical Framework. This assignment is not gradable. For this week, you will focus on the theoretical framework; do not start to collect the data as yet. This phase of your paper is explanatory or theoretical. Theoretical Framework refers to how each independent variable is related to performance, a measure of profitability. This section identifies the dependent variable and the independent variables. The Dependent Variable is the Industry Performance. A typical measure of performance is Net Revenue. Independent Variables include the elements of market structure and market conduct (see chapter 7): 1. CR4 2. Technology 3. Demand and Market Conditions 4. Potential for entry CONDUCT (pricing strategy): Define and list the elements of conduct: 1. Pricing behavior 1. Integration 1. Research and Development Define and explain how each independent variable influence industry performance. For example, CR4 or concentration ratio is a measure of the percentage of industry sales controlled by the top four largest companies. If the CR4 exceeds at least 70 percent of industry sales, then these companies as a group can restrict sales and raise prices, which results in high profits for the industry. Hence, the relationship between CR4 and Profitability id positives. NEXT: offer at least two scholarly articles on how others (existing literature) describe such a relationship as well. This will be part of your reference page. You should have at least two scholarly articles. Do the same for technology, market conditions, and pricing (define, and explain the type of relationship). Next week, we will focus on collecting data on the industry for at least 10 years. d. Data collection and sources of secondary data Data Collection Before you start to do the write-up of your Term Paper, you should have a plan. I will recommend that you do a pre-stage as follows, before you start to write. This pre-stage will serve as an outline/guide to do your term paper write-up. Pre stage: Industry variables with profit as the dependent variable (performance) 1. Identify the name of the industry that you wish to investigate and its six-digit code. 1. The variables that you wish to examine for your industry are based on a paradigm- a framework that you will use to examine the evidence of the industry. This framework is called the Structure-Conduct-Performance, following Porter’s Five Forces of an industry’s profitability in the long run. The variable that represents the performance of an industry is profit for at least a 10-year period (long-run). Use the table below to collect data for 10 years. Table showing the profit data over time and related industry variables for the past twenty-five years I: Name of Industry: _________________________________________________________________ II: NAICS SIX-DIGIT CODE: _______________________________________________________________ Years Profit/Sales/Revenue CR4 Comments 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 After you have collected the annual data for profit (or sales or net revenues), try to have a sense of the data by constructing a Trend Line, that is, show a scatter plot and line chart between Profit and Years; and CR4 and years. IS there a relationship? Positive, negative, or no relationship. This is your research question. According to the structure of the industry, profit can be explained to be positive or zero. Exploratory Data Analysis Research question: IS the long run profit increasing or decreasing over time. Use secondary data and existing literature to answer my research question. If your industry long-run profit is positive, offer some evidence as support from the articles that you have listed above. Once you have some idea of your overall paper, you can now begin to put thoughts in writing. MG 640 Industry Paper and Grading Rubrics STAGE I: Topic and Approach to your paper…………….………..(15%) Outline of Industry Analysis Paper STAGE I: Introduction In the introduction, there are three things to include: a) Clearly state the name of the industry that you wish to understand more or explain. Next, identify the problem leading up to the study of it, such as high-cost industry; little competition or not; is it capital- or labor-intensive etc.? Here, you may also include a brief background of your industry. A list of possible industries is shown in chapter 7 in your textbook. Once you have decided on the name of your industry as your topic, locate its corresponding six-digit NAICS code, and state how you plan to collect your data. Also, state whether your industry is operating in foreign countries (export and import), and if so, offer examples of some exporting and importing countries. b) State the importance of resolving the problem facing the industry in the US economy. For example, if you choose the Airline Industry, you may wish to find out whether the industry is competitive or not. c) State the purpose or the central theme of your paper. The purpose is to two-fold: i) Theoretical: that is to explain how structure influences conduct and subsequently the performance of the industry. ii) Empirical: to collect data on profit and the explanatory variables, and show whether a long-term relationship exists between profit and concentration ratio. Regression Model is on P.84 STAGE II: Body of the paper…………………………………………………….. (70%) In this section, discuss the theoretical framework and empirical findings of your industry. Purpose: To offer an analysis of the industry in terms of its structure, conduct and performance. The research question is whether structure and conduct influence the performance of the industry over time. Theory: The standard theoretical framework or paradigm states that the industry’s structure influences the pricing, and thus the profitability of the industry. Theoretical Framework: Show how the independent variables affect the performance (dependent variable) of the industry over the past ten years. A measure of performance is profit or net revenue. The key independent variables are concentration ratio (CR4), Market size and Technology. Here, you will define and show the theoretical relationship (state whether it is positive or negative) and then offer some evidence from the existing literature. Empirical Findings: Research question: IS the long-run profit increasing or decreasing over time. Use secondary data and existing literature to answer my research question Here, you will focus your study on profit and only one key independent variable for the last ten years. That is, collect data on profit and CR4 for ten years. Next, draw a scatter plot for performance and CR4. Is there a long-term trend line? Is the relationship positive or negative as expected in the theoretical section above? See Regression Analysis on Page 84 in your textbook. STAGE III: Summary, Conclusion and References………………………….. (10%) a) Summary: In about one paragraph or so, summarize the key findings of your industry. b) Conclusion: In about two sentences or so, suggest some improvement about the S-C-P approach, or any other areas, such as data collection, or issues related to your findings about the purpose of your paper; or state your recommendations or suggestions for future research or the main point of your paper. In other words, have you adequately answered your research question or purpose of your paper? c) References: In-text Citations (quote least 2 sources); paraphrase and appropriate referencing. Reference page: two or more sources-hanging indentation. STAGE IV: Format of your Term Paper……………………………………….(5%) a) APA Style – Indentations – Running head – Page numbering – Appropriate subheadings – Times New Roman Fon – Error-free – Double-spaced b) About 6-7 pages in length TOTAL: ———————————————————————————100% I. Industry Structure a. What is structure? The structure of an industry refers to the characteristics of the market to include concentration ratio (CR4), market conditions, and technology (known as the subparts of structure), that influence pricing and subsequently performance. b. The subpart of structure includes: – CR4 (explain how this variable will influence the pricing of the industry and hence profit). CR4 measures the market shares of the top 4 largest companies in the industry. Use Monroe Library and related secondary sources to access the top 4 largest companies of an industry. A high CR4, say above 75% means that the industry’s sales are controlled by a few large companies. Under this situation, it is likely that the top sellers may restrict the industry’s output and cause the price to increase, and in turn an increase in profits for this industry. So, a positive relationship is expected between CR4 and performance. Here, you may further use a scatter plot to show the theoretical relationship between CR4 and performance. – Technology (explain how this variable will influence the pricing of the industry and hence profits). Technology is the use of tools and knowledge to change the environment; or simply put, it refers to the state of art in mixing different combinations of K and L in the production process. If an industry uses more capital (machines, tools and robots) compared to L (workers), then that industry is capital intensive. Usually, capital-intensive industries are more likely to mass-produce individual products at low costs. As the volume of output produced increases, then the cost per unit declines. This situation is called economies of scale for industries that offer standardized goods and services. (FC/Q) Cost per unit Declining cost Unit cost curve 0 # of units of Q Efficient Production In the case of product differentiation, the industry can offer improved product features for consumers and charge a slightly higher price. A measure of technology is the expenditure on Research and Development (R &D). A positive relationship is expected between technology and profitability. The more an industry invests on R &D, the more likely that industry will earn high profits over time. – Market conditions (explain how this variable will influence the pricing of the industry and hence profits) A market is defined as an arrangement between buyers and sellers of a well-defined product. The forces of demand and supply will result in an increase in the market price that satisfies both the sellers and the buyers. A measure of the market size is the population or the number of people living in the geographic area. Specify whether the target market is national, the entire US market and/or international. But in some industries, the market size may or may not be large enough to absorb the efficient scale of output under the concept of economies of scale. So, we can conclude that the larger the market size relative to the efficient production level, the more likely a few firms will dominate the market, and thus earn an above average rate of return. (FC/Q) Market size (US) Cost per unit Market size (world) UC 0 # of units of Q Efficient Production II. Define Conduct In this study, conduct refers to the pricing of the goods and services. The price above the Marginal cost of production is called the Lerner Index. The greater the Learner Index, the higher will be the mark-up of the product. So, there is a positive relationship between the Lerner Index and the performance of the industry. Here, you may wish to explain how to compute the Lerner Index. There are two ways an industry can control the pricing of the product: through vertical integration and horizontal integration. Businesses operating in the same market can merge to gain larger market share and hence the control of pricing. Or, a company can operate in different markets, either by acquiring other companies in the raw material industry (vertical integration) or simply by a merger. State whether your industry has increased its size via integration (that is, have there been recent mergers and acquisitions in the industry that you are studying? Explain and make references to scholarly articles.
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