nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒07‒05
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. ENFORCING COVENANTS NOT TO COMPETE: THE LIFE-CYCLE IMPACT ON NEW FIRMS By Evan Starr; Natarajan Balasubramanian; Mariko Sakakibara
  2. Patent litigants, patent quality, and software: lessons from the smartphone wars By Ronald A. Cass
  3. The Acquisition and Commercialization of Invention in American Manufacturing: Incidence and Impact By Ashish Arora; Wesley M. Cohen; John P. Walsh
  4. Hospital Mergers with Regulated Prices. By Brekke, Kurt R.; Siciliani, Luigi; Straume, Odd Rune

  1. By: Evan Starr; Natarajan Balasubramanian; Mariko Sakakibara
    Abstract: We examine the impact of enforcing non-compete covenants (CNC) on the formation and performance of new firms using matched employer-employee data on 30 US states. To identify the impact of CNC, we exploit the inter-state variation in CNC enforcement along with the fact that courts do not enforce such covenants between law firms and departing lawyers in any state. Using a difference-in-difference-in-difference specification with law firms and firms that are not withinindustry spinouts as the baseline, we find states with stricter CNC enforcement have fewer, but larger within-industry spinouts that are more likely to survive their nascent years, and conditional on survival, grow faster during those years. These results are consistent with CNC enforcement having a selection effect on within-industry spinouts. Particularly, with stricter enforcement, only founders with higher-quality ideas and resources choose to overcome CNC-related barriers, which reduces entry rate but increases observed short-term performance of these spinouts.
    Keywords: Covenants Not to Compete, Entrepreneurship, Spinouts
    JEL: L25 L26 L41 L5 K2 K3 J6 M2 M5
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:cen:wpaper:14-27&r=ind
  2. By: Ronald A. Cass
    Abstract: Commentators, public officials, and scholars have sounded alarms over the smartphone patent wars — hundreds of cases asserting infringement of patents by makers of smartphones and tablet computers—often suggesting broad, categorical “fixes” to problems this litigation reveals. In general, these recommendations sweep too broadly, throwing out good claims as well as bad and needed remedies as well as questionable ones. However, calls for attention along two margins promise improvements. One factor, the identity of the enterprise asserting patent rights, already is being used by courts in considering appropriate patent infringement remedies but its use needs to be refined. The other factor, patent quality—especially in software patents, where the existence of parallel schemes of intellectual property protection exacerbates quality problems—is even more critical to the way the system operates. Addressing the patent quality issue (which is distinct from patent clarity or patent notice) can do more than other reforms to reduce costs without reducing innovation incentives.
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:icr:wpicer:05-2014&r=ind
  3. By: Ashish Arora; Wesley M. Cohen; John P. Walsh
    Abstract: Recent accounts suggest the development and commercialization of invention has become more “open.” Greater division of labor between inventors and innovators can enhance social welfare through gains from trade and greater economies of specialization. Moreover, this extensive reliance upon outside sources for invention also suggests that understanding the factors that condition the extramural supply of inventions to innovators is crucial to understanding the determinants of the rate and direction of innovative activity. This paper reports on a recent survey of over 6000 American manufacturing and service sector firms on the extent to which innovators rely upon external sources of invention. Our results indicate that, between 2007 and 2009, 18% of manufacturing firms had innovated – meaning had introduced a product that was new to the market. Of these, 49% report that their most important new product had originated from an outside source, notably customers, suppliers and technology specialists. We also estimate the contribution of each source to innovation in the US economy. Although customers are the most frequent outside source, inventions acquired from customers tend to be economically less significant than those from technology specialists. As a group, external sources of invention make a significant contribution to the overall rate of innovation in the economy. Indeed, results from a multinomial logit model suggest that, were the outside availability of innovation to be removed, the percentage of innovating firms in the U.S. manufacturing sector would drop from 18% to 10%.
    JEL: L1 O3 O30 O31 O32 O34
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20264&r=ind
  4. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Siciliani, Luigi (University of York); Straume, Odd Rune (University of Minho)
    Abstract: We study the effects of a hospital merger using a spatial competition framework with semialtruistic hospitals that invest in quality and expend cost-containment effort facing regulated prices. We find that the merging hospitals always reduce quality, whereas non-merging hospitals respond by increasing (reducing) quality if qualities are strategic substitutes (complements). A merger leads to higher average treatment cost efficiency and, if qualities are strategic substitutes, might also increase average quality in the market. If a merger leads to hospital closure, the resulting effect on quality is positive (negative) for all hospitals in the market if qualities are strategic substitutes (complements). Whether qualities are strategic substitutes or complements depends on the degree of altruism, the effectiveness of cost-containment effort, and the degree of cost substitutability between quality and treatment volume.
    Keywords: Hospital mergers; Quality competition; Cost efficiency; Antitrust.
    JEL: I11 I18 L13 L44
    Date: 2014–06–30
    URL: http://d.repec.org/n?u=RePEc:hhs:nhheco:2014_021&r=ind

This nep-ind issue is ©2014 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.