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on Microeconomics |
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Issue of 2007‒10‒06
twenty papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Licandro, Omar; Navas-Ruiz, Antonio |
| Abstract: | The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a two-country endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms market power. |
| Keywords: | Competition and growth; R&D; Trade openness |
| JEL: | F13 F43 O3 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6500&r=mic |
| By: | Evrim Dener (SMU) |
| Abstract: | In a durable good monopoly where consumers cannot observe quality prior to purchase and product improvement occurs exogenously over time, we show that uncertainty in quality may resolve the time inconsistency problem (even for low levels of product improvement). Higher dispersion in quality creates greater demand for future product by increasing the incentive of buyers with inferior quality realizations to repurchase and this, in turn, reduces the incentive of the seller to cut future price. For various levels of product improvement, we characterize the range of quality uncertainty for which the market equilibrium is identical to one where the monopolist can credibly precommit to future prices. We also show that the presence of quality uncertainty can lead to no trading in the primary good market. |
| Keywords: | durable goods, dynamic inconsistency, quality uncertainty |
| JEL: | L15 L12 D42 D81 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:707&r=mic |
| By: | Aditi Sengupta (Southern Methodist University) |
| Abstract: | In a model of managerial delegation in a duopoly with asymmetric costs, I show that an increase in the intensity of market competition (product differentiation) increases the absolute weight placed on rival's profit (relative performance) in the managerial compensation scheme for both firms and also increases market concentration. The relatively efficient (larger) firm always places higher weight on rival's performance and obtains higher market share. |
| Keywords: | Strategic Delegation, Relative Performance, Managerial Compensation, Oligopoly |
| JEL: | D43 L13 M52 M21 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:708&r=mic |
| By: | Mattias Ganslandt (Research Institute of Industrial Economics (IFN)); Lars Persson (Research Institute of Industrial Economics (IFN) and CEPR); Helder Vasconcelos (Universidade Católica Portuguesa (Porto) and CEPR) |
| Abstract: | In their merger control, EU and the US have considered symmetric size distribution (cost structure) of firms to be a factor potentially leading to collusion. We show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with higher risk of collusion, when firms face indivisible costs of collusion. In particular, we show that if the rule determining the collusive outcome has the property that the large (efficient) firm benefits sufficiently more from collusion when industry asymmetries increase, collusion can become more likely when firms are moderately asymmetric. |
| Keywords: | Collusion; Cost Asymmetries; Merger Policy |
| JEL: | D43 L41 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:152007&r=mic |
| By: | Simon Cowan; John Vickers |
| Abstract: | This paper uses convexity arguments to determine the effects of monopolistic third-degree price discrimination on total output and welfare. We focus on benchmark cases, including constant demand elasticities, with constant curvature of inverse demand ?. We show how the effects of price discrimination depend on (a) the degree of curvature ? relative to zero (for output) and one (for welfare), and (b) whether low-price markets have greater curvature than high-price markets. |
| Keywords: | Price Discrimination, Monopoly |
| JEL: | D42 L12 L13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:355&r=mic |
| By: | Severin Borenstein; Nancy L. Rose |
| Abstract: | Following a brief review of the U.S. domestic airline industry under regulation (1938-1978), we study the changes that have occurred in pricing, service, and competition in the 28 years since deregulation. We then examine some of the major public policy issues facing the industry: (a) the sustainability of competition and volatility of airline profits, (b) possible market power of dominant airlines, and (c) congestion and investment shortfall in the airport and air traffic infrastructure. |
| JEL: | L1 L13 L51 L93 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13452&r=mic |
| By: | Uwe Dulleck; Rudolf Kerschbamer |
| Abstract: | This paper studies the incentives for credence goods experts to invest effort in diagnosis if effort is both costly and unobservable, and if they face competition by discounters who are not able to perform a diagnosis. The unobservability of diagnosis effort and the credence characteristic of the good induces experts to choose incentive compatible tariff structures. This makes them vulnerable to competition by discounters. We explore the conditions under which honestly diagnosing experts survive competition by discounters; we identify situations in which experts misdiagnose consumers in order to prevent them from free riding on experts' advice; and we discuss policy options to solve the free-rider problem. |
| Keywords: | Experts, Discounters, Credence Goods, Advice, Free Riding |
| JEL: | L15 D82 D40 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2007-21&r=mic |
| By: | Lokshin, Boris (UNU-MERIT); Mohnen, Pierre (UNU-MERIT) |
| Abstract: | This paper examines the impact of the Dutch R&D fiscal incentive program, known as WBSO, on R&D capital formation. Taking a factor-demand approach we measure the elasticity of firm R&D capital accumulation to its user cost. An econometric model is estimated using a rich unbalanced panel covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we examine the impact of the R&D incentive program. We find evidence that the program of R&D incentives in the Netherlands has been effective in reducing the user cost of R&D and in stimulating firms' investment in R&D. |
| Keywords: | R&D tax credits, panel data, crowding out, user-cost elasticity, R&D, fiscal incentives |
| JEL: | O32 O38 H25 H50 C23 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2007025&r=mic |
| By: | Thomas Grandner (Department of Economics, Vienna University of Economics & B.A.) |
| Abstract: | Economides (1986) has shown that within a linear city an equilibrium exists in a two-stage location-price game when the curvature of the transportation cost function is sufficiently high. One important point is that not all of these equilibria are at maximal differentiation. In this paper we include an additional stage with decentralized wage bargaining. This intensifies price competition resulting in locations that are nearer to the extremes of the city. The magnitude of this effect depends on the bargaining power of the unions. |
| JEL: | L13 J51 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp109&r=mic |
| By: | Iwasa, Kazumichi; Kikuchi, Toru |
| Abstract: | In this note we construct a simple international differentiated duopoly model that involves a divisionalization decision. It will be shown that the number of third market divisions of a parent firm with a cost advantage is relatively large. The results imply that the cost competitiveness of one country’s firm will be magnified through divisionalization decisions. |
| Keywords: | divisionalization; product differentiation; cost competitiveness |
| JEL: | F12 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5120&r=mic |
| By: | Anthony Creane (Michigan State University); Hideo Konishi (Boston College) |
| Abstract: | In 1984 GM and Toyota began the joint production of automobiles to much controversy over its anti-competitive effects. The argument for the joint production was the considerable efficiency gains GM would obtain. Since then, the anti-trust controversy has died, but a question remains: why would the most efficient manufacturer (Toyota) transfer to its largest rival the knowledge to transform itself into a very efficient rival? We examine when such transfers could be unilaterally profitable, finding that it can serve as a credible way to make the market more competitive, forcing high cost firms to exit (or preventing future entry). This is not without a cost to Toyota since such a transfer also makes the remaining rivals more efficient. Despite this, we find a sufficient (but not necessary) condition for it to be profitable to predate "by proxy": the market satisfies an entry equilibrium condition. Further, we find that it is then optimal to predate on every firm that is vulnerable and so a market with many firms can become a duopoly. Profitable predation implies higher prices, to the detriment of consumers. Yet the improved production efficiency outweighs this loss, resulting enhanced social welfare. In contrast, profitable non-predatory joint production (or technology transfers) may reduce welfare. Paradoxically, the potential for predation could encourage entry ex ante. |
| Keywords: | Predation, Technology Transfers |
| JEL: | D4 L1 L41 |
| Date: | 2007–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:677&r=mic |
| By: | Lokshin, Boris (UNU-MERIT); Belderbos, René (Katholieke Universiteit Leuven, Eindhoven University of Technology); Carree, Martin (University of Maastricht) |
| Abstract: | We examine the impact of internal and external R&D on labor productivity in a 6-year panel of Dutch manufacturing firms. We apply a dynamic linear panel data model that allows for decreasing or increasing returns to scale in internal and external R&D and for economies of scope. We find complementarity between internal and external R&D, with a positive impact of external R&D only evident in case of sufficient internal R&D. These findings confirm the role of internal R&D in enhancing absorptive capacity and hence the effective utilization of external knowledge. The scope economies due the combination of internal and external R&D are accentuated by decreasing results to scale at high levels of internal and external R&D. The analysis indicates that on average productivity grows by increasing the share of external R&D in total R&D. |
| Keywords: | R&D, Innovation, Complementarity, Panel Data |
| JEL: | O32 O33 D24 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2007026&r=mic |
| By: | Fumagalli, Chiara (Università Bocconi); Motta, Massimo (European University Institute); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We extend the literature on exclusive dealing, which assumes that entry can occur only by installing new capacity, by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance. Third, exclusive dealing, despite allowing the more efficient technology to find its way into the industry, reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal, (ii) it leads to a sub-optimal contractual price when the exclusive dealing include a price commitment, (iii) it may deter entry altogether. |
| Keywords: | Technology Transfer; Inefficient Entry; Antitrust; Authority's Behavior |
| JEL: | L24 L42 |
| Date: | 2007–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0718&r=mic |
| By: | Ariel Burstein; Christian Hellwig |
| Abstract: | Pricing complementarities play a key role in determining the propagation of monetary disturbances in sticky price models. We propose a procedure to infer the degree of firm-level pricing complementarities in the context of a menu cost model of price adjustment using data on prices and market shares at the level of individual varieties. We then apply this procedure by calibrating our model (in which pricing complementarities are based on decreasing returns to scale at the variety level) using scanner data from a large grocery chain. Our data is consistent with moderately strong levels of firm-level pricing complementarities, but they appear too weak to generate much larger aggregate real effects from nominal shocks than a model without these complementarities. |
| JEL: | E3 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13455&r=mic |
| By: | Willi Leibfritz; Jürgen Janger |
| Abstract: | Enhancing growth through more innovation has become a priority for Austrian policy makers in line with European policies as laid down in the Lisbon Agenda. This paper discusses Austria’s innovation performance, its innovation policies, and general framework conditions for innovation and growth. Austria has increased its R&D spending as a share of GDP over the last ten years, largely reflecting more business R&D, and aims at increasing it further to 3% of GDP by 2010. Innovation activity as measured by output indicators has also improved in various fields, including the number of innovating SMEs. Furthermore, policy instruments and institutions have been improved and a culture of policy evaluation is developing. However, the paper identifies some weaknesses, particularly in general economic framework conditions, which may limit the creation and diffusion of innovation and productivity growth. It suggests focusing more on these framework conditions, notably by strengthening competition in non-manufacturing product markets, such as retail and professional services, reducing the cost of firm creation and improving human capital. It also argues that focusing on a numerical target for R&D spending as an end in itself is very unlikely to be cost effective. With its university reform in 2002, Austria has made a major step in improving the efficiency of tertiary education but more needs to be done. <P>Comment améliorer la performance de l’Autriche en matière d’innovation <BR>Dans le droit fil des politiques européennes prévues par la Stratégie de Lisbonne, le renforcement de la croissance par un surcroît d’innovation est devenu une priorité pour les responsables autrichiens de l’action publique. Nous abordons dans le présent document les performances et les politiques de l’Autriche en matière d’innovation, ainsi que ses conditions-cadres pour l’innovation et la croissance. En pourcentage du PIB, le pays affiche sur la décennie écoulée une augmentation des dépenses de R-D largement imputable à une progression de la R-D dans les entreprises, et s’est fixé pour objectif de l’accroître encore à hauteur de 3 % du PIB d’ici 2010. À l’aune des indicateurs de production, les activités d’innovation ont connu des améliorations dans différents domaines, et le nombre de PME innovantes notamment a progressé. Les autorités ont également fait évoluer les moyens d’action et les institutions publiques, et une culture de l’évaluation des politiques menées se met en place. Nous détaillons cependant quelques points faibles qui, en particulier sous l’angle des conditions-cadres économiques, sont susceptibles de restreindre l’éclosion et la diffusion de l’innovation, ainsi que la croissance de la productivité. Nous suggérons d’axer davantage l’action sur ces conditions-cadres, notamment en renforçant la concurrence sur les marchés de produits non manufacturés tels que le commerce de détail et les services assurés par les professions libérales, en diminuant les coûts liés à la création d’une entreprise et en valorisant le capital humain. Nous indiquons par ailleurs que l’assignation aux dépenses de R-D d’un objectif numérique considéré comme une fin en soi a très peu de chances d’être économiquement rentable. Avec la réforme universitaire engagée en 2002, l’Autriche a franchi une étape cruciale sur la voie de l’amélioration de l’efficience de son enseignement supérieur, mais elle doit encore fournir d’autres efforts. |
| Keywords: | economic growth, productivity, croissance économique, productivité, competition, innovation, innovation, concurrence, subsidies, research and development, technological change, tertiary education, recherche-développement, changement technologique, enseignement supérieur, subventions |
| JEL: | H2 J2 O30 O31 O33 O38 Q40 Q43 Q52 |
| Date: | 2007–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:580-en&r=mic |
| By: | Bronwyn H. Hall |
| Abstract: | Measuring the private returns to R&D requires knowledge of its private depreciation or obsolescence rate, which is inherently variable and responds to competitive pressure. Nevertheless, most of the previous literature has used a constant depreciation rate to construct R&D capital stocks and measure the returns to R&D, a rate usually equal to 15 per cent. In this paper I review the implications of this assumption for the measurement of returns using two different methodologies: one based on the production function and another that uses firm market value to infer returns. Under the assumption that firms choose their R&D investment optimally, that is, marginal expected benefit equals marginal cost, I show that both estimates of returns can be inverted to derive an implied depreciation rate for R&D capital. I then test these ideas on a large unbalanced panel of U.S. manufacturing firms for the years 1974 to 2003. The two methods do not agree, in that the production function approach suggests depreciation rates near zero (or even appreciation) whereas the market value approach implies depreciation rates ranging from 20 to 40 per cent, depending on the period. The concluding section discusses the possible reasons for this finding. |
| JEL: | D24 G12 L20 O30 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13473&r=mic |
| By: | Alex Coad (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], Max Planck Institute of Economics - [Evolutionary Economics Group]); Rekha Rao (LEM - Laboratory of Economics and Management - [Sant'Anna School of Advanced Studies]) |
| Abstract: | The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm-and year-specific "innovativeness" index by extracting the common variance in a firm's patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicity weighting each firm equally according to the principle of "one firm equals one observation". Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies. |
| Keywords: | Technological unemployment, innovation, firm growth, Weighted Least Squares, aggregation, quantile regression. |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00175042_v1&r=mic |
| By: | Raffaele Miniaci (Università di Brescia); Carlo Scarpa (Università di Brescia); Paola Valbonesi (Università di Padova) |
| Abstract: | In this paper we analyse some distributional effects of the reforms of water and energy services in Italy. We first document the new regulation setting in these services, illustrating the dynamics of utility prices and of household expenditure in the period 1998-2005. We then propose a way to measure the affordability of public utilities, in order to investigate how many households would incur a potentially excessive burden, if they consumed a minimum quantity of utility services. Finally, we calculate this index on data from the ‘Survey on Family Budgets’. Our results show how the affordability of utility bills varies from region to region depending on climate, income, family endowment and size. The analysis – also based on a counterfactual exercise – finds that so far, utility reforms do not seem to have produced any negative effects on weaker households. |
| Keywords: | Affordability, Public Utilities, Regulation, Gas, Electricity, Water |
| JEL: | D12 L51 L97 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0050&r=mic |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Alexander Rathke (Institute for Empirical Research in Economics, University of Zurich) |
| Abstract: | Increasing financial disparity and spiralling wages in European football have triggered a debate about the introduction of salary caps. This paper provides a theoretical model of a team sports leagues and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfare. |
| Keywords: | Salary Caps, Social Welfare, Competitive Balance, Team Sports League |
| JEL: | L83 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:iso:wpaper:0072&r=mic |
| By: | Alex Coad (Centre d'Economie de la Sorbonne et Max Planck Institute of Economics - Germany); Rekha Rao (LEM, Sant'Anna School of Advanced Studies, Pisa, Italy) |
| Abstract: | The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm-and year-specific "innovativeness" index by extracting the common variance in a firm's patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicity weighting each firm equally according to the principle of "one firm equals one observation". Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies. |
| Keywords: | Technological unemployment, innovation, firm growth, Weighted Least Squares, aggregation, quantile regression. |
| JEL: | L25 O33 J01 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:r07036&r=mic |