Empirical Industrial Organizations

Term Paper Research Proposal

Yevgeniya Pak

A preliminary topic of my research paper is the effect of the significant change in the product’s
appearance on the total annual sales of a firm in Russia. The rest of the independent variables would
be total cost of labor, years of top manager’s experience, price of a product, spending on purchases
of machinery, vehicles, equipment, and the size of locality. The dataset contains 4220 observations,
but for the paper the number of the observations will be decreased.

totsales=β0 + β 1 changeapp+ β 2 tcostlab+ β 3 exper+ β 4 price+ β 5 spend + β 6 ¿¿

The data is collected from the World Bank Open Data site and the focused region will be Russia.
There are a number of inefficient variables in a dataset, such as access to land, the presence of own
website, use of e-mail to communicate with the workers, etc. They have no effect on my research
question, therefore I will restrict the dataset and keep only those variables I need for the research.
Probably, I might include tax rates to avoid the problem of endogeneity problem, because taxes are
connected with price of machinery.

I have chosen the variable of total annual sales of a firm as the dependent one, because it is
important to find an impact of distinct variables on the firm activity in the industrial paper. The
variable ‘significant change in the product’s appearance’ was selected as a primary independent
variable, because it is interesting to identify whether there is a public reaction to the new design or
not. I assume that there is a positive impact of the introduction of new design on the total sales of a
firm, because people are attracted and intrigued about innovation of a specific product. They would
still buy the product even if they never had a chance to taste it beforehand, because humans are
easily manipulated by new beautiful picture or appearance of a single product. Moreover, there are
more dependent variables that would help me to build an efficient model to find out the most
accurate effect on the total sales. They include: total cost of labor, price of a product, spending on
machinery purchases – because not only the design dictates the profit of a firm, but the cost of
intermediate and final goods; years of top manager’s experience – the level of education as well as
the years of manager’s working in this field can also have an effect on a specific form’s profitability;
and the size of locality – the bigger the firm is, the greater the production is likely to be.