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on Industrial Organization |
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Issue of 2014‒07‒13
seven papers chosen by |
| By: | Paolo Bertoletti (Department of Economics and Management, University of Pavia); Federico Etro (Department of Economics, University of Venice Ca' Foscari) |
| Abstract: | We provide a unified approach to imperfect (monopolistic, Bertrand and Cournot) competition equilibria with demand functions derived from symmetric preferences over a large but finite number of goods. The equilibrium markups depend on the Morishima Elasticity of Substitution/Complementarity between goods, and can be derived directly from the utility functions and ranked unambiguously. We characterize the endogenous market structures, their dependence on market size, income and firms’ productivity and compare them with the optimal allocations. Finally, we apply our results to the case of preferences such as Generalized Leontief, Generalized linear and Generalized quadratic that we introduce in the literature on imperfect competition. |
| Keywords: | Monopolistic Competition, Imperfect Competition, Elasticity of Substitution, Free Entry |
| JEL: | D11 D43 L11 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0081&r=ind |
| By: | Antonelli, Cristiano; Scellato, Giuseppe (University of Turin) |
| Abstract: | The analysis of the characteristics of firms helps understanding the causes and the consequences of the direction of technological change. Firms differ substantially with respect to the type of technological knowledge they can generate and exploit with the introduction of technological innovations. This in turn has major effects on the direction of technological change they are able to introduce. Large firms able to command the recombinant generation of codified knowledge with a strong scientific base are more likely to introduce neutral technological changes that consist in a shift effect of production functions. Small firms that rely more on tacit and external knowledge are more likely to rely on technologies directed towards the most intensive use of locally abundant production factors. The effects of this difference in terms of the resulting total factor productivity growth are important and can be grasped only when the changes of output elasticity of production factors in growth accounting are properly appreciated. The empirical evidence for a sample of 6600 Italian firms observed during the years 1996 - 2005 confirms that large firms introduced mainly neutral technological changes while small firms with lower levels of profitability introduced biased technological changes. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:201417&r=ind |
| By: | Thomas Fagart (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | This paper develops and analyzes a dynamic model of partially irreversible investment under cournot competition and stochastic evolution of demand. In this framework, I characterize the markov perfect equilibrium in which player's strategies are continuous in the state variable. There exists a zone in the space of capacities, named the no-move zone, such that if firms capacity belongs to this area, no firm invest nor disinvest at the equilibrium. Thereby, initial asymmetry between firms capacity can be preserved. If firms are outside this area, they invest in order to reached the no-move zone. The equilibrium as an efficiency property: the point of this area which is reached by the firms minimizes the investment cost of the all industry. |
| Keywords: | Capacity investment and disinvestment, dynamic stochastic games, Markov perfect equilibrium, real option games. |
| JEL: | D43 L13 L25 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14039&r=ind |
| By: | Flach, Lisandra; Irlacher, Michael |
| Abstract: | This paper studies the innovation strategies of multi-product firms in industries with different scope for product differentiation. In a simple model of multi-product firms, we show that returns to product versus process innovation are industry-specific. Demand and cost linkages induce a natural distinction between the returns to product and process innovation. In highly differentiated industries, the cannibalization effect is lower and, therefore, firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillover effects and invest more in process innovation. We test the predictions from the model using Brazilian firm-level data, with information on investment efforts over time. Following a major exchange rate devaluation, firms have better access to foreign markets and exploit economies of scale in innovation. However, detailed information on product and process innovation allows us to evaluate differential effects across industries. We con.rm the predictions from the theoretical model and show that the type of innovation depends on the industry scope for differentiation. |
| Keywords: | Multi-Product Firms; Innovation; Product Differentiation; Cannibalization Effect; Spillovers; Globalization |
| JEL: | F12 F14 L25 |
| Date: | 2014–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:21022&r=ind |
| By: | Irlacher, Michael |
| Abstract: | In this paper, I investigate welfare gains associated with trade induced intra-firm adjustments of multi-product firms. To disentangle the welfare gains, I split up the R&D portfolio of a multi-product firm into three different channels: i) product innovation, ii) investments in the degree of product differentiation, and iii) process innovation. Trade integration enables firms to exploit economies of scale as innovation requires upfront development costs and encourages firms to spend more on R&D. I derive the indirect utility function and show that consumers bene.t from this behavior through a larger product range (love of variety) which is also more differentiated (love of diversity). Furthermore, a larger market is associated with technology upgrading. The resulting cost savings are passed on to consumers, leading to welfare gains from lower prices. |
| Keywords: | International Trade; Multi-Product Firms; Gains from Trade; R&D; Cannibalization Effect; Product Differentiation |
| JEL: | F12 L25 |
| Date: | 2014–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:21023&r=ind |
| By: | Fiocco, Raffaele; Gilli, Mario |
| Abstract: | We investigate regulation as the outcome of a bargaining process between a regulator and a regulated firm. The regulator is required to monitor the firm’s costs and reveal its information to a political principal (Congress). In this setting, we explore the scope for collusion between the regulator and the firm, which results in the manipulation of the regulator’s report on the firm’s costs to Congress. The firm’s bene.t of collusion arises from the higher price the efficient firm is allowed to charge when the regulator reports that it is inefficient. However, a higher price reduces the gains from trade the parties can share in the bargaining process. As a result of this trade-off, the efficient firm has a stake in collusion only if the regulator’s bargaining power in the regulatory relationship is relatively high. Then, we derive the optimal institutional response to collusion and characterize the conditions under which allowing collusion is desirable. |
| Keywords: | asymmetric information; auditing; bargaining; collusion; regulation. |
| JEL: | D73 D82 L51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:466&r=ind |
| By: | Alberto Galasso; Mark Schankerman |
| Abstract: | Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms. |
| JEL: | O33 O34 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20269&r=ind |