microéconomie_23/06/2008
23 06 2008Source : NEP (New Economics Papers) | RePEc
Competition, R&D and the cost of innovation
This paper proposes a model in the spirit of Aghion and al. (2005) that relates the magnitude of the impact of competition on R&D to the cost of innovation. The effect of competition on R&D is an inverted U-shape. However, the shape is flatter and competition policy is therefore less relevant for innovation when innovations are relatively costly. Intuitively, if innovations are costly for a firm, competitive shocks have to be significant to alter its innovation decisions. Empirical investigations using a unique panel dataset from the Banque de France show that an inverted U-shaped relationship can be clearly evidenced for the largest firms, but the curve becomes flatter when the relative cost of R&D increases. For large costs, the relationship even vanishes.
Software Marketing on the Internet: the Use of Samples and Repositories
This paper examines one of the most important marketing strategies by software producers on the Internet. That is whether to offer free samples and if so, whether to list the samples on shareware repositories. I show that firms with higher value products have a greater incentive to offer free samples but are more reluctant to do so if they are well known, and even when they do are less likely to be listed on shareware repositories. I then proceed to use four types of Probit-based models to corroborate the findings from the theoretical model.
Keywords: Shareware; Software; Internet; Distribution; Intermediation; Directory; Repository; Advertising; Brand; Reputation; Asymmetric Information; Search; Sample.
JEL: D42 D43 D82 D83 L13 L15 L81 L86
The Impact of Competition on Macroeconomic Performance
This paper investigates the impact of the toughness of competition on the macroeconomic performance of countries. The relation between competition and innovation has been investigated intensely in industrial economics. It started with Schumpeter’s hypotheses that monopoly profits were necessary for innovation, leading then to U-curve relationships where innovation was the highest for medium-range of competition, but lower for very tough competition as well as for a very lax competitive regime. Empirical studies on the growth differences between countries increasingly stress – apart from the usual suspects like investment, R&D, human capital – the role of institutions. They include indicators on regulation, government size, corruption and rule of law, but usually not the degree of competition. Conventional growth theory did not model the impact of competition, but assumed perfect competition. In New Growth T heory, economic growth depends on purposeful and maximising innovation activities, where market structure plays an important role. But this did not result in the inclusion of competition variables into empirical growth equations. We have attempted to bridge this gap a bit by relating 13 indicators on the toughness of competition to macroeconomic performance. We then added these competition indicators to an equation relating macro performance to the standard explanatory variables for economic growth (like investment and R&D). The results indicate that competition plus innovation is a good recipe at the macro level, too, probably with similar tensions and non-linearity as at the company level.
Keywords: Competition Macroeconomic Performance Innovation
Distance to Frontier and Appropriate Business Strategy
This paper is an empirical test of the hypothesis that the appropriateness of different business strategies is conditional on the firms distance to the industry frontier. We use data on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution of firm behavior to market value at various points of the conditional distribution of Tobin’s q. Among our results, we observe that innovative activity, measured in terms of R&D expenditure or patents, has a strong positive association with market value at the upper quantiles (corresponding to the leader firms) whereas the innovative efforts of laggard firms are valued significantly less. Laggard firms, we suggest, should instead achieve productivity growth through efficient exploitation of existing technologies and imitation of industry leaders. Employment growth in leader firms is encouraged whereas growth of backward firms is not as well received on the stock market.
Keywords: Distance to frontier, Strategy, Market value, Innovation, Firm Growth
JEL: L25 L21 D21 O31
Optimal ownership in joint ventures with contributions of asymmetric partners
This paper faces two questions concerning Joint Ventures (JV) agreements. First, we study how the partners contribution affect the creation and the profit sharing of a JV when partners’ effort is not observable. Then, we see whether such agreements are easier to enforce when the decision on JV profit sharing among partners is either delegated to the independent JV management (Management Sharing) or jointly taken by partners (Coordinated Sharing). We find that the firm whose effort has a higher impact on the JV’s profits should have a larger profit shares. Moreover, a Management sharing ensures, at least in some cases, a wider range of self-enforceable JV agreements.
Keywords: joint ventures; strategic alliances; ownership structure; asymmetries.
JEL: L14 L13 D43 L22
Strategic delegation in experimental duopolies with endogenous incentive contracts
Often, deviations of firm behavior from profit maximization are the result of managerial incentive contracts. We study the endogenous emergence of incentive contracts used by firm owners to delegate the strategic decisions of the firm. These contracts are linear combinations either of own firm’s profits and revenues, or own and rival firms’ profits. A two- and three-stage game are studied depending on whether owners commit or not to a certain contract type before setting the managerial incentives and the level of output to produce in the market. We report experimental results which confirm some of the predictions of the model, especially those concerning owners’ preference for relative performance incentives over profit-revenue contracts. Neglected behavioral aspects are proposed as possible explanation of some divergence between the theory and the experimental evidence, more specifically the relation between contr act terms and managers’ output choices
Keywords: Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts.
JEL: D43 L21
A Multilevel Analysis of Innovation in Developing Countries
Innovation is a multilevel phenomenon. Not only characteristics of firms but also environment within which firms operate matter. Although this has been for long recognized in the literature, a quantitative test that explicitly concerns the hypothesis that framework conditions affect innovativeness of firms remains lacking. Using a large sample of firms from many developing countries, we estimate a multilevel model of innovation that integrates explanatory factors at different levels of the analysis. Apart from various firm’s characteristics, national economic, technological and institutional conditions directly predict the likelihood of firms to innovate.
Keywords: Innovation, Technological Capability, Multilevel Modeling, Institutions, Developing Countries
JEL: C30 E11 O30
Quality and variety competition in higher education
In this paper, we analyze a bidimensional quality competition between two higher education sectors characterised by different preferences (academic vs. vocational) as well as cost structures, and its impact on curriculum’s provision (type and quality), both in decentralised and social welfare maximisation settings. The students are heterogenous in terms of their valuation of quality and their intellectual type. We try to illustrate in this abstract setting some stylized facts as academic drift of vocational institutions as well as addressing more normative issue as the relative merits of binary or unitary models of higher education
Keywords: Higher education, competition, vertical and horizontal differentiation
JEL: I21 L13 N30
Enabling and Sustaining Collaborative Innovation
This paper extends the principles of open source software development to a non-industry-specific level by introducing the Open Source Innovation (OSI) model. OSI exhibits main differences to other related models and concepts such as the private-collective model, commons-based peer production, R&D networks and is therefore an innovation model in its own right. In order for OSI projects to be successful, numerous factors need to be fulfilled. We make the distinction between four categories of factors: economic, technical, legal, and social. In each category, we differentiate between enabling and sustaining factors. The enabling factors must be met at the beginning of the project, whereas the sustaining factors must be satisfied as the project progresses.
Keywords: OSI; open source innovation; R&D
JEL: O32 L17 O3 O31
How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets
Prices may differ between regional markets if transport capacities are limited. We develop a new approach to determine to which extent such differences stem from limited participation in cross-border trader rather than from bottlenecks. We derive a theoretical integration benchmark for the typical case where transportation markets clear before the product markets, using Grossman’s (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis: Capacity prices contain too little information about spot price dierential; this indicates that well informed traders do not engage in cross-border trade.
Keywords: Market integration, electricity markets, interconnector, competition policy, rational expectations equilibrium
JEL: G14 D84 L94
Using Contract Mechanisms to Coordinate Product line Decisions
In this paper we design contract mechanisms to increase the efficiency of product line decisions in a Supply Chain (SC). A two stage SC with a buyer and the supplier is considered. The end consumers are comprised of two segments with different willingness to pay. The final demand and the segments’ willingness to pay are assumed to be deterministic. Two different settings are analyzed: A generalized setting where the end consumer’s willingness to pay is proportional to the quality of the product and the second is a specialized case where the consumer’s willingness to pay is independent of the quality of the product. It is demonstrated that in both the settings a decentralized SC stocks less number of product variants when compared to centralized SC. Marketing literature suggests that the so-called “slotting allowance” is a mechanism to increase the efficiency of product line decisions. However, the literat ure on slotting allowance does not address the issue of coordination and win-win. In this paper we discuss the revenue and profit sharing mechanisms. It is shown that not only these mechanisms coordinate the SC but that they also provide win-win to both players
Keywords: Product line decisions, Contract mechanisms, Channel coordination & win-win.
Characteristics of Foreign R&D Strategies of Swiss Firms. Implications for Policy
The aim of the paper is, firstly, to identify a number of strategies Swiss firms pursue by performing foreign R&D, expecting that firms, in many instances, are driven by a combination of several motives (”mixed strategies”). Secondly, we ask whether foreign and domestic R&D are substitutes or complements. Thirdly, we draw some policy conclusions based on results for direct and indirect home-country effects of foreign R&D. By applying cluster analysis, we identified four specific patterns of motives of foreign R&D. In a second step, we investigated whether these clusters effectively may be interpreted as specific types of R&D strategies. To this end, the clusters were characterised in terms of a large number of variables, which, according to the OLI paradigm of FDI, determine foreign R&D. We found that the patterns of the four clusters systematically differ with respect to these theory-relate d variables. Some clusters represent, in terms of motives, broad-based mixed strategies, whereas others are strongly focused. It turns out that foreign R&D strategies that primarily aim at exploiting capabilities of the domestic headquarters dominate, whereas cost-reducing strategies are of very minor importance. In case of the other two strategies knowledge sourcing is a constituent element, in the first one, knowledge sourcing is at the core, in the second case it is an important element in the frame of a broad-based strategy. The relative importance of the four strategies implies that, on balance, foreign and domestic R&D are complements. Notwithstanding this positive result, it is sensible to take policy actions supporting the economy to capitalise even more on outward FDI in R&D. Policy basically should aim at securing the attractiveness of Switzerland as a location for R&D-intensive headquarters of firms performing foreign R&D, and at enhancing know ledge spill-overs from headquarter companies to other domestic firms. The five categories of measures we recommend are part of a framework-oriented policy design rather than of a more interventionist concept.
Keywords: Internationalisation of R&D Motives of foreign R&D Foreign R&D strategies Knowledge spillovers Home-country effects of outward FDI in R&D
Platform Intermediation in a Market for Differentiated Products
We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the unique subgame perfect equilibrium of the game, the platform fully internalizes the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers retain part of the economic rents. The market allocation is constraint efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.
Keywords: Two-sided markets; network externalities; intermediation; advertising
JEL: L12 L13 D42 D43
Computing welfare losses from data under imperfect competition with heterogeneous goods
We study the percentage of welfare losses (PWL) yielded by imperfect competition under product differentiation. When demand is linear and firms are identical, if prices, outputs, costs and the number of firms can be observed, PWL is arbitrary in both Cournot and Bertrand equilibria. However, if the elasticity of demand can be estimated, under a Cournot equilibrium, PWL is a function of the elasticity of demand, the number of firms and the price-marginal cost margin. In a Bertrand equilibrium, PWL is a function of the cross elasticity of demand, the number of firms and the price-marginal cost margin. When firms are not identical, we provide conditions under which PWL increases with concentration. When demand is isoelastic and there are many firms, PWL can be computed from prices, outputs, costs and the number of firms. In all these cases we find that price-marginal cost margins and demand elasticities may influence PWL in quite a counterintuitive way.
Private CSR Activities in Oligopolistic Markets: Is there any room for Regulation?
The present paper examines the conditions under which the regulator can complement the provision of Corporate Social Responsibility (CSR) activities by private firms in an oligopolistic market. Our main finding is that if there is no credible information disclosure about SR characteristics of the firms’ products to consumers, no firm will have incentives to undertake CSR effort in equilibrium. However, if the necessary information about the CSR aspects of each firm’s product, otherwise unobservable, is made available to consumers through certification provided either by a profit-maximizing certifier or by the regulator, then both firms will have incentives to engage in CSR activities. Hence in equilibrium, consumers’ surplus, firms profits and total welfare increase comparing to the benchmark case without CSR activities.
Keywords: Corporate Social Responsibility, Oligopoly, Vertical Differentiation, Certification.
JEL: M14 L13 L5
Do firms’ owners delegate both short-run and long-run decisions to their managers in equilibrium?
The present paper explores the scope of strategic delegation, to the firms’ R&D investments and market competition in a Cournot Oligopoly. The firms’ owners’ have two alternative strategies: either the Full Delegation (FD) one, in which firms’ owners delegate both short-run and long-run decisions to their managers, or the Partial Delegation (PD) one, in which firms’ owners delegate only short-run decisions to their managers. We investigate which delegation strategy will emerge in equilibrium, under the assumption that there is no credible commitment between the firms’ owners over the strategy they will select. We find that the Universal Partial Delegation is never an equilibrium configuration. If the initial unit cost is relatively high (low), the Universal Full Delegation (Coexistence) configuration is the only endogenously emerging equilibrium. However, the above results are sensitive to the existence of the commitment assumption.
Keywords: Strategic Delegation, Oligopoly, R&D Investments, Equilibrium Delegation Schemes.
JEL: C20 C72 L22 O33
How does University Collaboration Contribute to Successful R&D Management?
The issue of through what processes R&D collaboration with universities affects a firms’ innovation performance remains under-researched. In particular, university relationships have not been fully integrated in the open innovation framework. This study explores the relationship between firms’ collaboration with universities and their capabilities for innovation, as perceived by R&D managers. Drawing on a series of interviews with R&D managers at 45 randomly selected firms collaborating with two research universities in Sweden, we explicitly recognise mechanisms through which university relationships contribute to successful R&D management.
Keywords: University-Industry Link; Innovation; Technology transfer; R&D; Research collaboration
JEL: I23 O31 O32
Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains
We examine how the strategic long-run decisions, such as cost-reducing R&D investments, prior to the decision for integration; create endogenous efficiency gains that make a horizontal integration profitable. The “merger” and the “acquisition” are distinguished as different modes of horizontal integration, with respect to both incentives and equilibrium outcomes. We show that firms’ incentives for integration depend on the magnitude of the cost efficiencies that R&D investments give rise to and the rule of sharing of the integrated entity’s profits across participants. The welfare effects of horizontal integrations are also discussed.
Keywords: Horizontal mergers and acquisitions; Processes Innovations; Endogenous efficiency gains.
JEL: C72 G34 O31
Tariff-Mediated Network Externalities: Is Regulatory Intervention Any Good?
Mobile phone networks’ practice of charging higher prices for off-net than for on-net calls has been pinpointed as the source of two competition problems: underprovision of calls and permanent disadvantages for small networks. We consider these allegations and four different remedies: limiting on/off-net differentials or off-net margins, lower termination fees, and asymmetric termination fees. In all cases a trade-off has to be made between efficiency and networks’ profits on the one hand, and consumer surplus on the other. Indeed, the total welfare effects of regulating on/off-net differentials are ambiguous and depend on demand characteristics.
Keywords: Network competition; on/off-net differentials; retail price controls; termination fees
JEL: L13 L51 L96
Optimal ownership in joint ventures with contributions of asymmetric partners
This paper faces two questions concerning Joint Ventures (JV) agreements. First, we study how the partners contribution affect the creation and the profit sharing of a JV when partners’ effort is not observable. Then, we see whether such agreements are easier to enforce when the decision on JV profit sharing among partners is either delegated to the independent JV management (Management Sharing) or jointly taken by partners (Coordinated Sharing). We find that the firm whose effort has a higher impact on the JV’s profits should have a larger profit shares. Moreover, a Management sharing ensures, at least in some cases, a wider range of self-enforceable JV agreements.
Keywords: D43; L13; L14; L22
JEL: L14 L13 D43 L22
Bertrand Competition with Non-rigid Capacity Constraints
We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional cost, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as (a) the number of firms becomes large and (b) the capacity cost increases.
JEL: D5 L2
Post Merger Innovative Patterns in Small and Medium Firms
This paper investigates whether involvement in mergers and acquisitions (M&As) triggers distinct patterns of innovative behaviour across firms situated at different points on the firm size distribution. Firms use more and more M&As as mechanisms to bridge the gap between where they are and what they want to achieve in terms of innovation and performance. We explore the different impact of M&A activity on the likelihood that firms begin to innovate using an unique dataset combining innovation and economic firm-level data from two different sources: the 4 waves of Community Innovation Survey and the Business Register, for the Dutch manufacturing sector. The analysis is carried out at different size classes. The results show that both new entry and persistence in innovative activities are fostered by M&A involvement. Medium firms are the ones showing the highest probabilities of entering /persisting in innovative activities after M&As. For small firms, M&As do not ease the overcome of “the innovative threshold”; on the contrary they seem to increase the probability of exiting innovative status in the post-merger period.
Keywords: Mergers and acquisitions; innovation; small and medium enterprises; transition probabilities; probit models
JEL: L11 L25 D21 C14
Naked Exclusion: An Experimental Study of Contracts with Externalities
This paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts. We use the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000) where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent. When discrimination is impossible, the game resembles a stag-hunt (coordination) game in which the buyers’ payoffs are endogenously chosen by the incumbent seller. Exclusion occurs when the buyers fail to coordinate on their preferred equilibrium. Two-way non-binding pre-play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller. When discrimination and communication are possible, the exclusion rate rises. Divide-and-conquer strategies are observed more frequent ly when buyers can communicate with each other. Exclusion rates are significantly higher when the buyers’ payoffs are endogenously chosen rather than exogenously given. Finally, secret offers are shown to decrease the incumbent’s power to profitably exclude.
Keywords: Bargaining with Externalities; Contracting with Externalities; Experiments; Exclusive Dealing; Antitrust; Discrimination; Endogenous Payoffs; Communication; Coordination Games; Equilibrium Selection
JEL: D86 C9 L0 K0 K21 D4 L1 L4 C72
Congestion Pricing, Slot Sales and Slot Trading in Aviation
This paper studies the regulation of an airline duopoly on a congested airport. Regulation should then address two market failures: uninternalized congestion, and overpricing due to market power. We find that first-best charges are differentiated over airlines if asymmetric, and completely drive out the least efficient airline from the market. This is not generally the case for an undifferentiated charge, which is found to be a weighted average of first-best charge rules for the two airlines, and is less-than-optimally efficient because of its inability to differentiate between them. Tradeable slots may yield the first-best outcome if the congestion externality is relatively important and the market power distortion relatively unimportant, but may be less efficient than non-intervention when the reverse is true.
Keywords: Airport congestion; congestion pricing; slot trading; tradeable permits; second-best
JEL: R41 R48 D62
How Demand Information Can Destabilize a Cartel
This paper studies a symmetric Bertrand duopoly with imperfect mon- itoring where rms receive noisy public signals about the state of demand. These signals have two opposite eects on the incentive to collude: avoid- ing punishment after a low-demand period increases collusive prots, mak- ing collusion more attractive, but it also softens the threat of punishment, which increases the temptation to undercut the rival. There are cases where the latter eect dominates, and so the collusive equilibrium does not always exist when it does absent demand information. These ndings are related to the Sugar Institute Case studied by Genesove and Mullin (2001).
JEL: L13 L41
License Prices for Financially Constrained Firms
It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers’ point of view.
Open and closed industry clusters: The social structure of innovation
In this paper we discuss knowledge and innovation in clusters and the benefits of clustering from a knowledge-based perspective. Knowledge-based resources and innovations are important sources of competitive advantage for firms. Aware of the importance of continuously seeking new knowledge firms increasingly seek knowledge-rich locations such as specific industry clusters across the world. These are locations characterized by the concentration of firms operating in related and supporting activities, a specialized work force and a specialized institutional environment that nurtures the industry. However, it is not likely that these clusters are always locations from which the firms will be able to draw the intended knowledge benefits. The social structure of the relationships between individuals and firms determines the extent to which knowledge will be created, will flow between co-located firms and bounds the know ledge benefits the firms may capture. We finish with a discussion of the need of further examination of the network dynamics involved in an industry cluster to obtain a clearer identification of the actual positive externalities that may accrue to co-locating firms.
Keywords: Strategy; Industry clusters; Innovation
JEL: M0 M1
The impact of pooling and sharing broadcast rights in professional team sports
In this theoretical analysis, we try to find out what the implications are of pooling and sharing broadcast rights in a sports league. We concentrate on the impact on talent demand, competitive balance and ticket price, using a simplified 2-club non-cooperative Nash equilibrium model with the hiring of talent as the only decision variable, as well as a more general competitive equilibrium model with a large number of teams in the league and with talent hiring and ticket price as decision variables. The main conclusion is that the case for pooling and sharing broadcast rights is not very strong if clubs are profit maximisers. Decentralised selling and performance-based distribution of the rights seems to be the most promising scenario to improve the competitive balance. If clubs are win maximisers, the sharing of broadcast money always improve the competitive balance, but the monopolisation of the broadcast rights b y the league is not necessary for sharing.
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Catégories : Microéconomie
