Faculty Research

The College of Business conducts research in several different areas of business. Explore published research below from our faculty.

Researchers: Mussie Tessema, Kathryn Ready, et al.

Journal: International Journal of Business Performance Management (Forthcoming).

Research questions, purposes, and problems:

To examine the correlation between diversity-related values and the financial performance of the sample companies listed on the New York Stock Exchange.

Research methodology:

This study uses values statements randomly collected from 249 companies listed on the New York Stock Exchange (NYSE). The sample companies had 1419 corporate values statements, then categorized into 51 value classes. The 51 value classes were grouped into seven value dimensions. It also uses the following four indicators of financial performance of the sample companies: 2-year stock price changes, 5-year stock price changes, the price to earnings ratio, and price to sales ratio.

Findings of the study:

In this study, about 57 percent of the sample companies have publicized diversity related value statements. This may suggest that the number of companies that are working to diversify their workforce has been increasing. The findings of the current study show that diversity related values statements are found to be positively correlated with financial performance of the sample companies, as indicated by two and five-year price changes and price to earnings and sales ratios. The current study also reveals that diversity related values statements are positively correlated with two sectors, namely primary and tertiary.

Managerial and business implications of the study:

The positive correlation between diversity related value statements and financial performance of the sample companies has an important managerial implication in that companies should make effort to diversity their workforce. This is because having a diverse workforce and effective workforce diversity management can provide a number of advantages such as: fostering a larger pool of ideas and experiences; providing a company with greater knowledge of the preferences and consuming habits of a diversified market; meeting business strategy needs and the needs of customers more effectively; supplying a greater variety of solutions to problems in service, sourcing, and allocation of resources; and generating a variety of viewpoints.

Researchers: Jodi Olson and Joann Segovia

Journal: Journal of Business Strategies, 38(1), 62-71 (2021).

Research questions, purposes, and problems:

The article describes an affordable, easy to use resource, with relevant content for CPAs who need to fulfill National Association of State Boards of Accountancy (NASBA)-approved CPE credits.

Research methodology:

We cross referenced the NASBA technical fields of study to LinkedIn Learning Resources to identify the prevalence of learning opportunities that qualify for CPE credits for CPAs.

Findings of the study:

LinkedIn Learning provides a valuable resource for CPAs through CPE credit attainment and as client service opportunities.

Managerial and business implications of the study:

The inclusion of LinkedIn Learning as a sponsor in the NASBA Registry sends a clear message to the profession that these video tutorials provide affordable, easily accessible CPE with a breadth of content. Furthermore, given the free trial period and free access with a library card at a public library, the opportunity to assess this as a viable option for CPE credits comes at no risk to the practitioner.

Researchers: K. Gok, et al.

Journal: International Journal of Conflict Management, 32(1), 1-19 (2021).

Research questions, purposes, and problems:

This study aims to understand the conditions in which subordinates, after making a mistake, are more likely to engage in feedback avoidance behavior (FAB), a set of behaviors that could ultimately jeopardize patient safety in a health care context.

Research methodology:

This study used a sample of 183 independent leader-subordinate dyads in the health care service sector. For this study, a multiple mediator model in which three types of conflict (task conflict, relationship conflict, and process conflict) were tested and acted as mediating mechanisms that transmitted the effects of perceived dissimilarity to FAB.

Findings of the study:

The results supported the mediating role of two of the three forms of conflict and highlighted the consequences of dissimilarity between supervisors and subordinates in the healthcare setting.

Managerial and business implications of the study:

When delivered properly, performance feedback is a practical and impactful resource for both leaders and subordinates. However, research evidence shows that several factors reduce performance feedback effectiveness (Kluger and DeNisi, 1996). To address these factors, Steelman et al. (2004) established a construct called "feedback environment," which highlights six conditions necessary for delivering effective feedback that is accepted and even sought out (rather than avoided) by subordinates. All these conditions are highly relevant to minimizing perceptual differences and reducing conflict between leaders and subordinates. Before attempting to create a healthy feedback environment, the training must start with a heightened awareness of the tendency of leaders to treat subordinates perceived as dissimilar more negatively. The training should emphasize that some subordinates will be motivated to actively avoid feedback from their leaders because it may be ego-threatening or negatively affect their public image.

Researchers: Joann Segovia and Jodi Olson

Journal: Business Education Forum, 74(3), 10-13 (2020).

Research questions, purposes, and problems:

To provide instructors information on how to acquire access to LinkedIn Learning videos, share potential assignments for use in courses, and discuss the benefits of these videos.

Research methodology:

This article serves as a reference for instructors/faculty for building courses from available online resources on a variety of topics.

Findings of the study:

LinkedIn Learning provides instructors a valuable resource. Thousands of high-quality video courses addressing software and business-related topics exist that instructor can use to develop separate modules or supplement classroom curricula.

Managerial and academic implications of the study:

Faculty can save time in creating assignments that reflect relevant and interesting topics applicable to professional positions. In addition, students have cost savings by using the online videos rather than buying printed materials. The video-based content engages students and includes online quizzes or exercises for various topics.

Researchers: Mussie Tessema and Daniel Sauers

Journal: International Journal of Corporate Governance, 10(2), 149-164 (2019)

Research questions, purposes, and problems:

  • What types of corporate values statements do publicly traded companies have?
  • What are the most common types of corporate values statements?
  • How can corporate values statements be categorized?
  • What are the theoretical and practical implications of the findings?

Research methodology:

This study uses corporate values statements from 249 companies that are listed on the New York Stock Exchange. These corporate values statements were extracted from the websites of the sample companies.

The 249 companies had 1,419 values statements, which were then categorized into 51 value classes. The 51 value classes were then grouped into seven value dimensions. Further, the sample companies were grouped into the following three sectors: primary (extraction of raw materials, agriculture, etc.), secondary (manufacturing), and tertiary (service).

About 8 percent of the sample companies were from primary sector, 68 percent of the sample companies were from the secondary sector, and 24 percent of the sample companies were from tertiary sector.

Findings of the study:

This study identifies 51 corporate value classes, which are then grouped into the following seven value dimensions: commitment to customers, commitment to stakeholders, commitment to employees, commitment to diversity, commitment to integrity, entrepreneurship, and social responsibility.

The frequently cited values classes across the sample of companies starting from the top recurring values are integrity, innovation, and customer focus. Besides, the two most popular corporate value dimensions are commitment to integrity (85%) and commitment to customers (64%).

This study found that all sample companies have publicized corporate values statements (Table 2). While the median is 5, the mode is 5. On the average, the sample companies had about 6 publicized corporate value statements.

Managerial and business implications of the study:

The study has both practical and theoretical implications. One of the important implications of the current study is that while having too few publicized corporate values statements may not capture all the desired behaviors and unique dimensions of the company, having too many publicized corporate values statements may get employees overwhelmed and may lose their overall impact.

Another implication of the study is that if corporate value are to have the required impact, companies (leaders) should clearly define and explain corporate values statements, make sure they have measurable standards and few key behavioral attributes, discuss them in meetings and writings, communicate them internally and externally, promote them on the organizational website, make sure leaders embody them, take accountability to live the values and set an example (be good role models), support employees by showing them respect and providing resources needed to do their job successfully, and reinforce them with consistency.

Researcher: Hamid Yeganeh

Journal: International Journal of Health Governance, 24(2), 169-180 (2019)

Research purposes and questions:

To analyze the main global transformations of the healthcare sector and their underlying causes and effects.

Research methodology:

The study focuses on several important trends including the increasing life expectancy and aging, the rise of noncommunicable diseases, the risks of pandemics, medication expenditure, the globalization of healthcare, and technological innovations such as digitization, robotic and nano medicine.

Findings of the study:

The analysis indicates that the world populations will be much older in the near future and the healthcare sector will witness significant growth opportunities. The aging populations will put more pressure on healthcare systems and increase the incidence of noncommunicable diseases. In a globalized world, the risks of global pandemics are expected to increase.

The surge in the medication expenditure will put much pressure on healthcare systems, insurers, patients, employers, and providers. The healthcare sector is characterized by its above-average growth in the United States and much of the developed world. Therefore, the share of healthcare in GDP will continue to rise.

The digitization and globalization of healthcare may involve major disruptions in the location and the type of care. New materials particularly nanoparticles will be used to enhance, the precision, quality, and efficacy of diagnostics, medications, and treatments.

Managerial and business implications of the study:

In a world marked by the forces of globalization, demographic shift, social unrest, economic uncertainty, and technological innovation, healthcare remains an unusually vibrant and rapidly changing sector.

As the healthcare sector is undergoing seismic transformations, governments, businesses, and consumers are trying to control costs and provide quality services to their citizens and employees.

To meet the rising demands in the next decades, it is essential to make sense of the existing and forthcoming developments. Hence, the current paper aims at analyzing the main global transformations of the healthcare sector and their underlying causes and features.

More specifically, the paper focuses on several areas including demographic, medical, clinical, financial, managerial and technological transformations and examines their implications for the healthcare sector.

Researchers: Kimberly Mungaray and Nancy Curtin (Millikin University)

Journal: International Journal of Business Communication, 2019.

Research questions, purposes, and problems:

The study utilized the raw data from a previous case study that examined the raw focus group data from a previous case study that demonstrated the existence of a heteronormative leadership paradigm, personified in the heteronormative ideal leader who is strong, agentic, charismatic, and typically white and male.

The subject of the case study was a small public accounting firm in the mid-west United States. The purpose of this study was (a) to see if themes discovered through the preliminary analysis could be validated utilizing communication methodologies and (b) to explore more specifically, how language and communication construct identities and thus, if and how these identities construct and perpetuate the heteronormative leadership paradigm, which was discovered to exist during the preliminary phases of this research.

Research methodology:

The methodology grounding the preliminary analysis performed by Mungaray was feminist phronesis. Curtin independently analyzed the data using a methodology that combines elements of discourse analysis and conversation analysis.

Findings of the study:

This analysis corroborated the initial findings and expanded our understanding of how the firm is creating and perpetuating identities through catch phrases and language. The theme of super partner presented in the preliminary research was validated by the themes superior vs. subordinate and knower vs. discoverer/learner.

Another theme found in the preliminary research was the objectification of communication. This mechanism was found to perpetuate the current leadership norm and subjugate individuals. The concertized ideal of "communicating like a partner" effectively created a border that excluded others from becoming a partner.

The original research demonstrated the reification of communication. This study demonstrates the power language has in perpetuating an embedded heteronormative leadership identity regardless of the intentions of the interlocutors.

Despite Joe's (the partner of the CPA firm) desire to have a "pro-woman" firm, the catch phrases and language referring to leadership used often in organizational culture and interactions appear to perpetuate a heteronormative paradigm.

Managerial and business implications of the study:

This research furthers our understanding of what identities are constructed through language and catch phrases and how language and identities function to create and perpetuate a heteronormative leadership culture within the accounting context.

This research is important in light of the growing trend to blame women for opting out of pursuing top leadership positions. Organizational culture and the larger cultural context of what it means to be a leader can be problematic to identifying and accepting females as leaders.

If organizational culture is conditioning both men and women to understand leadership potential through a heteronormative and masculine lens, then women who do not perceive themselves as masculine will opt out because they do not see themselves as leaders.

Research shows that self-perception is an important factor in one's ability to seek leadership roles, however, little research has been done on how epistemological bias may be perpetuating a culture that underpins collective perceptions.

Researchers: Scott Chiu, Po-Chang Chen (Miami University) and Jessica Wang

Journal: Journal of Finance and Accountancy, 2019, 25 (in press).

Research questions, purposes, and problems:

The paper proposes a new estimation approach to cross-sectional accrual models with the objective of reducing the measurement error in discretionary accruals resulting from violation of the homogeneous accrual generating process in an industry.

Research methodology:

The proposed cycle approach features a two-step implementation of discretionary accruals estimation. The first step measures the within-industry variation of firms' operating cycles, which captures the heterogeneity of accrual generating process in a given industry.

The second step then applies those operating cycle variations to the estimation of discretionary accruals by allowing the regression coefficients on a key accrual determinant, i.e., sales changes, to differ across firms with varied operating cycles.

Findings of the study:

Applying our proposed approach to four commonly used cross-sectional accrual models: Jones model, modified Jones model, performance-matched Jones model and performance-matched modified Jones model.

The paper shows that the absolute values of discretionary accruals are consistently smaller than those estimated using the traditional approach without the cycle adjustment, especially in industries where firms have more heterogeneous accrual generating process, as measured by operating cycles.

This finding indicates a reduction in measurement error from the model estimation perspective. To demonstrate the usefulness of the new approach, the paper further tests and finds that cycle-adjusted discretionary accruals, versus unadjusted discretionary accruals, exhibit a stronger explanatory power for earnings management as proxied by the SEC Accounting and Auditing Enforcement Releases (AAER).

Together, these empirical findings support the notion that they cycle approach improves the estimation of discretionary accruals from both internal (i.e., reduced measurement error) and external (i.e., enhanced prediction of earnings management) perspectives.

Managerial and business implications of the study:

Discretionary accruals have been widely used in the accounting and finance literature to examine a firm's earning management behavior of earnings quality.

This paper contributes to the ever-growing literature on accrual models by proposing a theory-based and easily-implementable approach to improving the estimation of discretionary accruals and helps people have a better understanding of earning management behavior.

Researchers: Jana Craft and Sarah Schake

Journal: International Journal of Managerial Studies and Research (IJMSR), 7(4), 1-14 (2019).

Research questions, purposes, and problems:

To examine the manufacturing industry and recruiting challenges from a nationwide, statewide and localized focus area.

Research methodology:

Representatives from ten manufacturers voluntarily participated in a qualitative study to determine current recruiting challenges and tools used in manufacturer recruiting.

Survey respondents were asked open-ended questions about recruiting challenges faced by their business; participants were free to answer in an much or as little detail as desired.

Face-to-face interviews were used to expand on the topics of these survey questions and responses.

Findings of the study:

Nearly all HR managers ranked recruiting challenges as a top concern for their companies but for various reasons.

Challenges ranged from applicants possessing a lack of knowledge about working for a union; low unemployment rates forcing companies to "chase" applicants; redefining the employee-as-customer experiences; and finding qualified workers and upgrading machinery.

Employers ranked other challenges ahead of recruiting such as increasing sales and retaining workers.

Fifty-six percent of survey respondents indicated that job opening within their company were expected to increase in the next five years. While 56 percent of respondents also indicated that they were optimistic about their company's future recruiting efforts, the remaining 44 percent were either neutral or pessimistic.

Managerial and business implications of the study:

While research to understand where manufacturers' recruiting target market would be needed, firms could consider involvement with high school and college robotics teams, Boy Scouts and Girl Scout troops, Skills USA chapters, and military veterans' organizations.

Another strategy that is customer-focuses for a younger applicant demographic is student loan payback and investments by the company to pay for post-secondary education or training.

Manufacturers should take a customer-centric approach to recruiting by implementing a variety of strategies focuses on fulfilling a value proposition for applicants.

By treating the recruiting process as a sales venture and job applicants as another type of customer, job vacancies can be filled with a skilled workforce.

Researcher: Jana Craft

Journal: Journal of Business Ethics, 149 (1), 127-145 (2018)

Research purposes and questions:

  • To what extent were gaps found between espoused and enacted values?
  • To what extent did incongruent values impact the ethical business culture?
Research methodology:
A single-case descriptive qualitative study (Merriam 1998; Smith 1978; Yin 2009) of the ethical business culture of a large nonprofit organization was conducted.

Three sources of evidence were used to collect data on values-based decision making within the organization: documentation (Fraenkel et al. 2012; Hodder 1994; Jones 1996; Miller 1997), focuses groups (Krueger and Casey 2009) and existing survey data.

Findings of the study:
More congruent values were found than incongruent values. In essence, the majority of what was said (espoused) was practiced within the organization (enacted) and subscribed to by both hierarchical levels and differing locations.

Congruent values, both negative and positive, were found. Positive congruent values contributed to the strong sense of commitment and dedication to the organization expressed throughout the study, which positively impacted the ethical business culture.

Negative congruent values threatened to undermine the existing ethical business culture. Incongruent values negatively impacted individual morale and location-specific motivation more than the overall ethical business culture. In this section findings are applied to the five components of the ethical business cultures model in order to understnad how the values impacted each area.

The four components of the values-based decision-making model are graphed visually to illustrate which component was enacted and activated most, but to also show the prevalence of the four components in the culture, which would show support for a healthy ethical business culture.

Four key findings within the ethical business culture are discussed: personal values, reputation as an industry leader, evidence of a strong culture and mission as heart.

Managerial and business implications of the study:
This case study explored the impact of values and mission on ethical business culture. The mission was described as the "heart" of the organization that was both "lived and breathed." Dedication to the mission and a commitment to supporting the core values were vital within the culture.

Even though employees spoke of "losing our heart," but could not come to consensus on the heart of Ability, Inc., the findings were clear to the researcher, an unbiased outsider: the heart of Ability, Inc. was the mission.

The mission was the common thread that wove itself within each employee, nurturing compassion for their vulnerable adult clients and cultivating relationships with their families. The common thread of mission was present at each location and at every level of the organization in words and actions.

Helping clients make meaningful contributions to society and, in turn, receiving their thanks and gratitude motivated underpaid and over-worked staff members to press on and hope for better. A workforce grounded in ethics that consisted of employees who possessed a strong commitment to the organization's mission overcame the negative impact of incongruent values on the ethical business culture.

Journal: Human Resource Development Quarterly, 26(4), 409-429 (2018).

Researchers: Huh-Jung Hahn, et al.

Research questions, purposes, and problems:

To investigate whether trainees’ organization attitudes predict training performance.

Research methodology:

The setting was a mandatory interviewing skills course for managers in a major organization in Korea. To measure organizational attitudes (organization commitment and organization identification) of managers, a survey was collected from 149 managers before the beginning of the training. To measure their training performance, an assessment center was conducted at the end of the training.

Findings of the study:

In most prior research on training and development, employees’ attitudes toward their organization have been viewed as consequences of training interventions rather than as antecedents. This study showed that organizational attitudes (organizational commitment and organization identification) can be performance predictors of training if the primary purpose and content of the training are directly connected to organizational efficiency, effectiveness, and wellness rather than strengthening individual job‐related knowledge and skills. In particular, the results of the current study showed that organizational identification was a stronger predictor of training performance than organizational commitment.

Managerial and business implications of the study:

The finding is helpful to HR professionals in two main ways: 1) Trainee selection - for training that targets benefiting the organization, the training will be most impactful for employees with a high level of organizational identification and organizational commitment. 2) Training design - since the extent to which employees are willing to contribute to an organization is related to their performance in training, instructional design should emphasize employees’ positive attitudes toward the organization and attempt to strengthen those attitudes to enhance training performance.

Researcher: Jana Craft

Journal: SAGE Research Methods Cases (2018).

Research questions, purposes, and problems:
  • To share her experience in determining which method was appropriate for her research question
  • To showcase key aspects of case study design utilizing focus groups
  • To highlight the emotional toll case study design often takes on the researcher

Research methodology:

This case study highlights several aspects of my doctoral research in ethical business culture within a large non-profit organization in the human services industry.

I used a single-case descriptive design utilizing focus groups to gain an in-depth understanding of an organization's ethical business culture. The research examined a single phenomenon: the consistency between espoused and enacted values-based decision-making.

Findings of the study:

The study's findings indicated the following eight research practicalities for consideration to current or future researchers when using a qualitative design: Gatekeeping, ethical considerations, focus group research in action, using technology for coding and access, defend your design, honesty and anonymity, emotional intelligence, and the light bulb moment.

Managerial and business implications of the study:

Care should be taken in advance to prepare for undertaking research using a qualitative method in terms of physical time and emotional toll. Gaining entry and being clear up-front what you will and will not do are key to building trust necessary for honest participation.

Being diligent with a human subject proposal can benefit you in the long run and save time overall. Planning a question route and then being flexible when it veers off course are necessary, as is taking advantage of the benefits of using qualitative software whenever possible.

If you are convinced that a qualitative method- or several in combination- are the right avenue for your research, do not be afraid to stand up to your dissertation chair of thesis committee and defend your choice.

Take care to treat the information gleaned from interviews and focus groups as the prize that it is. People are trusting you with their personal thoughts and feelings, and researchers should respect emotional risk involved with this disclosure.

Anonymity, eliminating personal identifiers, and scrubbing data when permission is revoked are all important facets of this method. Cultural barriers and difficulty in communicating to diverse populations can negatively affect a researcher's ability to interpret meaning and remain unbiased. so keep that in mind as you determine your research questions.

Finally, understand that if you are low in emotional intelligence or regularly find it difficult to interpret meaning elicited from non-verbal communication, this may not be your best choice for a research method. The emotional toll of wading through the sea of emotion that comes with human subject research can be taxing, but the reward is a deeper understanding of your research.

Researcher: Lawrence P. Schrenk

Journal: In Robert Kolb, ed. The Sage Encyclopedia of Business Ethics and Soceity. 2nd ed. Sage, 2018, pp. 3514-3517

Research questions, purposes, and problems:
This entry surveys the ethical analysis of the concept of usury from the ancient world through the contemporary period.

Research method:
This is an intellectual survey in the history of business ethics.

The term usury has had two distinct, but related, meanings: Originally it meant any form of interest on debt, but as interest became more socially acceptable, especially since the "Commercial Revolution" beginning in the 13th century, its meaning shifted to refer to excessive interest (though what constitutes excessive remains a matter of controversy and can change over time history, so that what was unjust usury in an early period might, in a later one, be considered normal and moral business practice).

Business and managerial implications:
The use of debt financing in ubiquitous in the contemporary world, so an understanding of its moral implications is essential for ethical business practice.

Journal: Human Resource Development International, 20(4), 1-17 (2017).

Researcher: Huh-Jung Hahn

Research questions, purposes, and problems:

The purpose of this study is to examine the relationship between perceived employability and three domains of employee performance: in-role, adaptive, and extra-role. This study also tests the moderating effect of the perceived quality of employment on these relationships.

Research methodology:

A survey was collected from 334 employees and their 37 immediate supervisors working for an organization in South Korea. Supervisors were asked to evaluate their subordinates’ in-role performance, adaptive performance, and organizational citizen behavior.

Findings of the study:

Perceived employability is positively related to in-role and adaptive. That is, employees with high PE may exhibit high in-role performance, regardless of their perceptions of the quality of their relationship with the organization. Employees with high PE may exhibit more behaviors that adjust to and cope with both changed and new tasks and procedures. Perceived employability is positively associated with organization citizenship behavior when the employment relationship is perceived to be of high quality. Interestingly, perceived employability is negatively related to organization citizenship behavior for employees with high PE when employment quality is low. Thus, employees with high PE may engage in fewer constructive behaviors towards their co-workers than employees with low PE when the former perceive the employment relationship as being of low quality.

Managerial and business implications of the study:

This study provides a rationale for the legitimacy of investing in employees’ employability enhancement. We empirically tested the relationship between PE and performance review ratings, in-role performance, adaptive performance, and OCB. The results showed that employees with high PE exhibit positive behaviors in three domains of employee performance. Beyond individuals’ personal efforts, organizations should assume shared responsibility for enhancing employees’ PE. To enhance employees’ perception of their own employability, previous literature noted that organizational support for training and development is critical. For example, Wittekind, Raeder, and Grote surveyed participants to learn how many days of various types of training (e.g. job-related training, generic skill training, and leadership training) were provided by their employer during the past 12 months and what other inducements were offered by their employers to support their skill and career development along with their PE. In their longitudinal study, such organizational support for competence development predicted the employees’ level of PE.

Researchers: Jessica Wang, Mark Wrolstad, and Scott Chiu

Journal: Journal of Finance and Accountancy, 2017, 22: 31-44.

Research questions, purposes, and problems:

To analyze the relationship between employee wellness and firm stock market performance.

Research methodology:

This research explores rigorously the wisdom of investing in Koop Award winners by explicitly considering the aspect of risk. CAPM model, Fama and French three factor model, and propensity score matching are used to calculate different versions of risk-adjusted excess returns.

Findings of the study:

This paper finds that the monthly stock returns of Koop Award winners outperform both the monthly value-weighted market return and the S&P 500 monthly return index for the years 1994 through 2015.

Further, to control the effect of risk on stock returns, risk-adjusted excess returns are calculated cased upon both the CAPM model and the Fama-French three factor model. The Koop Award winners are found to have significantly positive risk-adjusted excess returns.

This paper also shows that Koop Award winners outperform their peers with similar firm characteristics using the propensity score matching method.

Managerial and business implications of the study:

Well-developed wellness programs will result in improved health, happiness, motivation, and workforce performance of the firm's employees.

With improved health, it is also expected that the reduction in medical expenditures will benefit the firm's bottom line and ultimately the investment performance of the firm.

Researcher: Lawrence P. Schrenk

Journal: Journal of Finance Issues 16.2 (2017): 47-57.

Research questions, purposes, and problems:

This paper employs a real option model to analyze price dispersion in highly competitive markets. Explanations of price dispersion typically assume monopolistic competition, so these fail to explain price ranges in markets closely approximating the conditions of perfect competition.

Research methodology:

This is a theoretical paper that develops a real options model of price dispersion in competitive markets.

Findings of the study:

Given standard economics principles, we expect price dispersion to decrease and prices to converge to an equilibrium price as markets become more efficient. Unfortunately, the empirical evidence strongly contradicts this conclusion- while prices may narrow, they certainly do not converge.

This model offers an explanation of the remaining price dispersion in such markets by relying on only simple assumptions. It analyzes price setting as a real option: if prices are rigid, setting a price is giving consumers a real option to purchase the product at that price for some period of time.

Managerial and business implications:

This model suggests that price dispersion is a natural phenomenon (not a market anomaly or imperfection) associated with market uncertainty requiring only a minimal and generally accepted set of assumptions that apply to approximately competitive markets.