nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒01‒14
seventeen papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Jostling for Advantage: Licensing and Entry into Patent Portfolio Races By Ralph Siebert; Georg von Graevenitz
  2. Static inefficiency of compulsory licensing: quantity vs. price competition By Cugno Franco; Ottoz Elisabetta
  3. An Experiment on Spatial Price Competition By Henrik Orzen; Martin Sefton
  4. Identifying behaviour in a multiproduct oligopoly: Incumbents reaction to tariffs dismantling By Jaumandreu, Jordi; Moral, Maria Jose
  5. Do Process Innovations Induce Product Ones? By Maria Rosa Battaggion; Piero Tedeschi
  6. Non-hierarchical signalling: two-stage financing game By Miglo, Anton; Zenkevich, Nikolay
  7. The Merits of New Pollutants and How to Get Them When Patents Are Granted By Grischa Perino
  8. Delegation and Incentives By Daniel Krähmer; Helmut Bester
  9. Code-sharing and its effect on airline fares and welfare By Achim I. Czerny
  10. Using price and demand information to identify production functions By Jaumandreu, Jordi; Mairesse, Jacques
  11. Internet Peering as a Network of Relations By Steffen Lippert; Giancarlo Spagnolo
  12. When Does Distributed Innovation Activity Make Sense? Location, Decentralization, and Innovation Success By Aija Leiponen; Constance E. Helfat
  13. The behaviour of producer prices - some evidence from the French PPI micro data By Erwan Gautier
  14. Incorporating spatial variation in housing attribute prices: A comparison of geographically weighted regression and the spatial expansion method By Bitter, Chris; Mulligan, Gordon; Dall'erba, Sandy
  15. The Industry R&D Survey: Patent Database Link Project By William Kerr; Shihe Fu
  16. Asymmetric Price Adjustment in the Small By Levy, Daniel; Chen, Haipeng (Allan); Ray, Sourav; Bergen, Mark
  17. A Case for Bundling Public Goods Contributions? By Suman Ghosh; Alexander Karaivanov; Mandar Oak

  1. By: Ralph Siebert (Department of Economics, Krannert School of Management, Purdue University, 403 West State Street, West Lafayette, IN 47907-2056, USA.; Georg von Graevenitz (INNO-tec, Munich School of Management, University of Munich, Kaulbachstraße 45, 80539 Munich, Germany.,)
    Abstract: Licensing in a patent thicket allows firms to either avoid or resolve hold-up. Firms’ R&D incentives depend on whether they license ex ante or ex post. We develop a model of a patent portfolio race, which allows for endogenous R&D efforts, to study firms’ choice between ex ante and ex post licensing. The model shows that firms’ relationships in product markets and technology space jointly determine the type of licensing contract chosen. In particular, product market competitors are more likely to avoid patent portfolio races, since the threat of hold-up increases. On the other hand, more valuable technologies are more likely to give rise to patent portfolio races. We also discuss the welfare implications of these results.
    Keywords: hold-up problem, licensing, innovation, patent race, patent thicket, research joint ventures
    JEL: L13 L49 L63
    Date: 2006–09
  2. By: Cugno Franco (University of Turin); Ottoz Elisabetta (University of Turin)
    Abstract: A common argument against compulsory licensing of intellectual property maintains that it facilitates the entry of inefficient producers, which may reduce social welfare independently of any effects on R&D incentives. We study the issue in a model where the innovative firm, under the threat of compulsory licensing, react strategically by choosing between quantity and price competition. We show that the risk of a reduction in static welfare due to the entry of highly inefficient firms is avoided if licensing entails a royalty per unit of output and zero fixed fee. The rationale behind this result lies in the fact that compulsory licensing threat works as a disciplining device to improve static social welfare, even when the applicant is a high cost inefficient firm.
    Date: 2006–06
  3. By: Henrik Orzen (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We conduct an experiment on price competition in a segmented market. Each segment contains one seller and one consumer, and consumers incur transportation costs when they buy from a seller located in another segment. We observe persistent price dispersion in our experimental markets with the implication that consumers frequently switch suppliers. We find that larger markets are more competitive, and that competitive pressures in large markets preclude sellers from exploiting higher consumers’ willingness to pay. We compare laboratory outcomes against several theoretical benchmarks. We find that mixed strategy equilibrium predictions from the analysis of a static model perform better than alternative benchmarks in organizing the data.
    Keywords: Spatial Price Competition; Price Dispersion; Experiments
    JEL: C72 C92
    Date: 2006–09
  4. By: Jaumandreu, Jordi; Moral, Maria Jose
    Abstract: The Spanish automobile market of the nineties experienced a perfectly foreseeable tariff dismantling and a strong demand downturn, with the observed result of an apparently sharpened producer competition in products and perhaps in prices. This paper is aimed at testing whether or not there really was a change in pricing behaviour, using a structural model of competition. To answer that question, we specify, estimate and test semiparametric pricing equations with panel data for 164 models belonging to the 31 firms which competed in the market. The specification includes several equilibriums as alternative estimating models, considering prominently tacit coalitions by which a group of firms sets prices, taking into account the cross effects on their demands. The statistical test selects as the best model given the data an unbroken coalition of domestic and European producers. Comparative results using tight demand side specifications show that an inadequate specification of the demand side may induce wrong inferences.
    Keywords: behaviour; tariffs; oligopoly; coalition;
    JEL: L13
    Date: 2006
  5. By: Maria Rosa Battaggion (Department of Economics, University of Bergamo); Piero Tedeschi (Department of Statistics, University of Milan-Bicocca)
    Abstract: We study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).
    Date: 2006–05
  6. By: Miglo, Anton; Zenkevich, Nikolay
    Abstract: The literature analyzing games where some players have private information about their "types" is usually based on the duality of "good" and "bad" types (GB approach), where "good" type denotes the type with better quality. In contrast, this paper analyzes a signalling game without types hierarchy. Different types have the same average qualities but different profiles of quality over time which are their private information. We apply this idea to analyze a financing-investment game where firms' insiders have private information about the firm's profit profile over time. If transporting cash between period is costless equilibrium is pooling with up-front equity financing. Otherwise equilibrium is either pooling with debt when the economy is stagnating, or separating when the economy is growing (some firms issue debt and some firms issue shares). This provides new theoretical results that cannot be explained by the standard GB models and which are consistent with some financial market phenomena.
    Keywords: Asymmetric information; Non-hierarchical signalling; Financing; Debt-equity choice; Equilibrium refinements; Intuitive criterion; Mispricing
    JEL: G32 D92 D82 C73
    Date: 2005
  7. By: Grischa Perino (University of Heidelberg, Department of Economics)
    Abstract: The performance of market based environmental regulation is affected by patents and vice versa. This interaction is studied for a new type of innovation where new technologies reduce emissions of a specific pollutant but at the same time cause a new type of damage. A robust finding is that the efficiency of permits is affected by monopoly pricing of the patent-holding firm. This result carries over to other types of innovation. Taxes are inefficient if technologies produce perfect substitutes and share all scarce inputs. Moreover, the optimal tax on pollution might be negative.
    Keywords: Innovation; Environment; Instrument Choice; Patents; Monopoly Pricing
    JEL: Q55 L5 H23 O3
    Date: 2006–07
  8. By: Daniel Krähmer (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin, Germany.; Helmut Bester (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin, Germany.
    Abstract: This paper analyses the relation between authority and incentives. It extends the standard principal-agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of effort depends both on monetary incentives and the selected project. We find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal.
    Keywords: authority, delegation, incentives, moral hazard, principal-agent problem, limited liability
    JEL: D82 D86
    Date: 2006–11
  9. By: Achim I. Czerny (Workgroup for Infrastructure Policy (WIP), Technische Universität Berlin)
    Abstract: Airlines frequently use code-share agreements allowing them to market seats on flights operated by partner airlines. Current studies argue that with complementary networks this generates positive welfare effects because fares for interline passengers who rely on the service of multiple airlines are supposed to fall. However, with codeshare agreements airlines can price discriminate between interline and other passengers. This might harm the latter which has been ignored so far. We show that code-share agreements can lead to welfare losses in the case of complementary networks.
    Keywords: Airlines, alliances, code-share agreements, antitrust immunity, price discrimination
    JEL: D01 L13 L41 L51 L93
  10. By: Jaumandreu, Jordi; Mairesse, Jacques
    Abstract: This paper explores the use of information on the firm-level prices of the produced output and employed inputs, as well as on the firm-level demand relationship, to identify the parameters of the production function. By considering the system of equations which includes the demands for variable inputs, the demand for the product of the firm and the pricing rule, both the production function and the cost equation can be rewritten in terms of fixed inputs and exogenous determinants (semi-reduced forms). Consistent estimation of this two equation system is possible under no especial distri-bution assumptions on unobserved e fficiency and, in addition, an estimate of the price elasticity of demand is recovered.
    Keywords: production function; demand relationship; reduced form; equation system;
    JEL: D24
    Date: 2006
  11. By: Steffen Lippert (Massey University, Department of Commerce, PB 102 904, NSMC, Auckland, New Zealand. Tel. +64 9 414 0800 Ext. 9283.; Giancarlo Spagnolo (Stockholm School of Economics, Department of Economics, P.O. Box 6501, SE–113 83 Stockholm, Sweden, and Consip Research Unit, Via Isonzo, 19/E, I–00198 Rome, Italy. Tel +39 320 431 2186.
    Abstract: We apply results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric ISPs. It is shown that - from a network of relations perspective – ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. We also explain why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have rather negative effects on the sustainability of the overall peering network.
    Date: 2006–11
  12. By: Aija Leiponen; Constance E. Helfat
    Abstract: Companies face an expanding set of choices about where to locate their innovation activity, both within their home countries and abroad. This location choice also requires firms to make a simultaneous choice about the organizational structure of innovation activity : almost by definition, multiple locations per firm imply some degree of decentralization. Using firm-level data on innovation output and the location of research and development (R&D) activity, we shed new light on the question of whether firms that have multiple locations also have greater innovation success. Our results indicate that, on average, having distributed R&D activity is beneficial in terms of the extent and breadth of innovation success, and the effect is strongly related to the knowledge sourcing strategies that firms employ. These results are consistent with the interpreta-tion that R&D location decisions are driven by the desire of firms to access a broad set of external sources of knowledge for innovation activities. We also find that the benefits of multiple R&D lo-cations do not apply to novel (new-to-the-market) innovations. Our results suggest that when analyzing technological innovation, it is important to distinguish between novel and imitative innova-tions, since their determinants may differ.
    JEL: O32 L22
    Date: 2006–12–21
  13. By: Erwan Gautier (Banque de France, DGEI-DIR-RECFIN 41-1391, 31 rue Croix-des-petits-champs, 75049 Paris Cedex 01, France.)
    Abstract: This paper provides some new empirical features on price setting behaviour for French producers using micro data underlying the producer and business-services price indices over the period 1994-2005. Some crucial methodological issues on the collection of producer prices are raised. Then, the main features of producers'price setting are presented - producer prices are modified quite frequently and by small amounts. A high heterogeneity across sectors is also observed: business-services prices change less often than industrial producer prices. The data lend some support to predictions of both time- and state-dependence models: Taylor contracts are not unusual but prices also respond to the changes in the firm's economic conditions. Nevertheless, time-dependent models are shown to be the most relevant theories to explain the producer price rigidity. JEL Classification: E31, D43, L11, L16.
    Keywords: Price stickiness, price duration, producer price index, frequency of price change.
    Date: 2006–12
  14. By: Bitter, Chris; Mulligan, Gordon; Dall'erba, Sandy
    Abstract: Hedonic house price models typically impose a constant price structure on housing characteristics throughout an entire market area. However, there is increasing evidence that the marginal prices of many important attributes vary over space, especially within large markets. In this paper, we compare two approaches to examine spatial heterogeneity in housing attribute prices within the Tucson, Arizona housing market: the spatial expansion method and geographically weighted regression (GWR). Our results provide strong evidence that the marginal price of key housing characteristics varies over space. GWR outperforms the spatial expansion method in terms of explanatory power and predictive accuracy.
    JEL: R0
    Date: 2006
  15. By: William Kerr; Shihe Fu
    Abstract: This paper details the construction of a firm-year panel dataset combining the NBER Patent Dataset with the Industry R&D Survey conducted by the Census Bureau and National Science Foundation. The developed platform offers an unprecedented view of the R&D-to-patenting innovation process and a close analysis of the strengths and limitations of the Industry R&D Survey. The files are linked through a name-matching algorithm customized for uniting the firm names to which patents are assigned with the firm names in Census Bureau’s SSEL business registry. Through the Census Bureau’s file structure, this R&D platform can be linked to the operating performances of each firm’s establishments, further facilitating innovation-to-productivity studies.
    Keywords: innovation, research and development, patents, scientists, technology
    JEL: C81 O30 O31
    Date: 2006–11
  16. By: Levy, Daniel; Chen, Haipeng (Allan); Ray, Sourav; Bergen, Mark
    Abstract: Analyzing a large weekly retail transaction price dataset, we uncover a surprising regularity—small price increases occur more frequently than small price decreases for price changes of up to about 10 cents, while there is no such asymmetry for larger price changes. The asymmetry holds for the entire sample and for individual categories. We find that while inflation can explain some of the asymmetry, inflation is not the whole story as the asymmetry holds even after excluding inflationary periods from the data, and even for products whose price had not increased over the eight-year period. The findings hold for different measures of inflation and also after allowing for lagged price adjustments. We offer a consumer-based explanation for these findings.
    Keywords: Asymmetric Price Adjustment; Price Rigidity; Rational Inattention; Rational Ignorance;
    JEL: D21 D11 M31 D80 L16 L11 E31
    Date: 2006–11–30
  17. By: Suman Ghosh (Department of Economics, College of Business, Florida Atlantic University); Alexander Karaivanov (Department of Economics, Simon Fraser University); Mandar Oak (Department of Economics, Williams College)
    Abstract: We extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated towards the financing of two pure public goods. We explore the welfare implications of allowing for such bundling vis-a-vis a separate contributions scheme. We show that when agents have homogeneous preferences, they cannot be made better off with a bundling scheme. On the contrary, in the generic case when agents are heterogenous in their incomes and preferences, bundling may increase joint welfare compared to a separate contribution scheme, in particular for higher income inequality among the agents. It is interesting to note that the welfare improvement occurs despite a decrease in total contributions. Our findings have implications for the design of charitable institutions and international aid agencies.
    Keywords: Private provision, Public goods, Bundling
    JEL: H41 D61
    Date: 2005–06

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