nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒01‒18
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Multiproduct Pricing Made Simple By Armstrong, Mark; Vickers, John
  2. Multinationals and the Globalization of R&D By María García-Vega; Patricia Hofmann; Richard Kneller

  1. By: Armstrong, Mark; Vickers, John
    Abstract: We study pricing by multiproduct firms in the context of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.
    Keywords: Multiproduct pricing, homothetic preferences, Cournot oligopoly, monopoly regulation, Ramsey pricing, cost passthrough, multidimensional screening
    JEL: D42 D43 D82 L12 L13 L51
    Date: 2016–01–08
  2. By: María García-Vega; Patricia Hofmann; Richard Kneller
    Abstract: We consider theoretically and empirically how the location and organization of knowledge production evolve within domestic firms during the period of their acquisition by foreign multinationals. Acquisitions do not increase the risk of closure of the subsidiary’s research labs unless acquired by MNEs at the technological frontier. Conditional on keeping research in the subsidiary, there is a large decrease of innovation expenditures, transfer of knowledge and reorganization towards high-skilled workers. We show that innovations increase, which is a consequence of the complementarity between foreign technology transfers and skilled-workers in the subsidiary.
    Keywords: MNE, Knowledge Production Function, Acquisition FDI, Knowledge Complementarities, R&D innovation.
    Date: 2015

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