nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒07‒28
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The fight against cartels: a transatlantic perspective By E. Dargaud; A. Mantovani; C. Reggiani
  2. Patent protection under endogenous product differentiation By Arijit Mukherjee
  3. Optimal R&D Subsidies with Heterogeneous Firms in a Dynamic Setting By Hall, Joshua; Laincz, Christopher

  1. By: E. Dargaud; A. Mantovani; C. Reggiani
    Abstract: The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred.
    JEL: K21 L44 K42 L21
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:bol:bodewp:wp894&r=ind
  2. By: Arijit Mukherjee (School of Business and Economics, Loughborough University, UK)
    Abstract: It is generally believed that patent pools by complementary input suppliers make the consumers, final goods producers and the society better off by reducing the complements problem. We show that this may not be the case under endogenous technology choice. Although a patent pool reduces input price, it may make the consumers and the society worse off by reducing innovation. We also show that a patent pool makes the input suppliers better off, but it may not make all final goods producers better off compared with non-cooperation between the input suppliers.
    Keywords: Complementary inputs; Patent pool; Innovation; Welfare
    JEL: L13 O31
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2013_07&r=ind
  3. By: Hall, Joshua (University of Tampa); Laincz, Christopher (Department of Economics & International Business LeBow College of Business Drexel University)
    Abstract: When firms engaged in R&D are observably heterogeneous (in size) and policymakers are able to condition policy on the observed heterogeneity, what is the optimal policy? This paper starts with a static two-stage duopoly model of R&D competition with uncertainty and finds it welfare enhancing to subsidize the larger firms, with no subsidies for (or taxes on) the smaller firm (extending existing results, Lahiri and Ono, 1999). This result follows because marginal cost reductions by the largest firm have larger net effects on consumer and producer surplus. The policymaker's goal is effectively to minimize the average cost of production. However, when we move to a dynamic setting, the optimal policy is less clear. When firms compete repeatedly, the degree of competition becomes an endogenous variable over the infinite horizon. The optimal policy depends on the nature of long-run competition. In some situations, the optimal policy remains the same, subsidize the larger firm. However, in other scenarios, the policymaker optimally chooses to subsidize the smaller firm more heavily to promote more intense competition which lowers the long-run deadweight loss and long run costs through increased R&D competition.
    Keywords: R&D; subsidies; duopoly; dynamics; heterogeneous firms
    JEL: L11 L16 O31
    Date: 2012–06–26
    URL: http://d.repec.org/n?u=RePEc:ris:drxlwp:2012_013&r=ind

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