nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒06‒13
twelve papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Competition, R&D and the cost of innovation By Philippe Askenazy; Christophe Cahny; Delphine Irac
  2. Software Marketing on the Internet: the Use of Samples and Repositories By Alexia Gaudeul
  3. The Impact of Competition on Macroeconomic Performance By Karl Aiginger
  4. Distance to Frontier and Appropriate Business Strategy By Alex Coad
  5. Optimal ownership in joint ventures with contributions of asymmetric partners By Marinucci, Marco
  6. Strategic delegation in experimental duopolies with endogenous incentive contracts By Nikolaos Georgantzís; Constantine Manasakis; Evangelos Mitrokostas; Emmanuel Petrakis
  7. A Multilevel Analysis of Innovation in Developing Countries By Srholec, Martin
  8. Quality and variety competition in higher education. By Olivier Debande; Jean-Luc De Meulemeester
  9. Enabling and Sustaining Collaborative Innovation By Blecker, Thorsten; Abdelkafi, Nizar; Raasch, Christina
  10. How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets By Georg Gebhardt; Felix Höffler
  11. Using Contract Mechanisms to Coordinate Product line Decisions By Reddy Nalla, Vijayender; Veen, Jack van der; Venugopal, Venu
  12. Characteristics of Foreign R&D Strategies of Swiss Firms. Implications for Policy By Heinz Hollenstein

  1. By: Philippe Askenazy; Christophe Cahny; Delphine Irac
    Abstract: This paper proposes a model in the spirit of Aghion and al. (2005) that relates the magnitude of the impact of competition on R&D to the cost of innovation. The effect of competition on R&D is an inverted U-shape. However, the shape is flatter and competition policy is therefore less relevant for innovation when innovations are relatively costly. Intuitively, if innovations are costly for a firm, competitive shocks have to be significant to alter its innovation decisions. Empirical investigations using a unique panel dataset from the Banque de France show that an inverted U-shaped relationship can be clearly evidenced for the largest firms, but the curve becomes flatter when the relative cost of R&D increases. For large costs, the relationship even vanishes.
    Date: 2008
  2. By: Alexia Gaudeul (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper examines one of the most important marketing strategies by software producers on the Internet. That is whether to offer free samples and if so, whether to list the samples on shareware repositories. I show that firms with higher value products have a greater incentive to offer free samples but are more reluctant to do so if they are well known, and even when they do are less likely to be listed on shareware repositories. I then proceed to use four types of Probit-based models to corroborate the findings from the theoretical model.
    Keywords: Shareware; Software; Internet; Distribution; Intermediation; Directory; Repository; Advertising; Brand; Reputation; Asymmetric Information; Search; Sample.
    JEL: D42 D43 D82 D83 L13 L15 L81 L86
    Date: 2008–06
  3. By: Karl Aiginger (WIFO)
    Abstract: This paper investigates the impact of the toughness of competition on the macroeconomic performance of countries. The relation between competition and innovation has been investigated intensely in industrial economics. It started with Schumpeter's hypotheses that monopoly profits were necessary for innovation, leading then to U-curve relationships where innovation was the highest for medium-range of competition, but lower for very tough competition as well as for a very lax competitive regime. Empirical studies on the growth differences between countries increasingly stress – apart from the usual suspects like investment, R&D, human capital – the role of institutions. They include indicators on regulation, government size, corruption and rule of law, but usually not the degree of competition. Conventional growth theory did not model the impact of competition, but assumed perfect competition. In New Growth Theory, economic growth depends on purposeful and maximising innovation activities, where market structure plays an important role. But this did not result in the inclusion of competition variables into empirical growth equations. We have attempted to bridge this gap a bit by relating 13 indicators on the toughness of competition to macroeconomic performance. We then added these competition indicators to an equation relating macro performance to the standard explanatory variables for economic growth (like investment and R&D). The results indicate that competition plus innovation is a good recipe at the macro level, too, probably with similar tensions and non-linearity as at the company level.
    Keywords: Competition Macroeconomic Performance Innovation
    Date: 2008–05–20
  4. By: Alex Coad
    Abstract: This paper is an empirical test of the hypothesis that the appropriateness of different business strategies is conditional on the firms distance to the industry frontier. We use data on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution of firm behavior to market value at various points of the conditional distribution of Tobin's q. Among our results, we observe that innovative activity, measured in terms of R&D expenditure or patents, has a strong positive association with market value at the upper quantiles (corresponding to the leader firms) whereas the innovative efforts of laggard firms are valued significantly less. Laggard firms, we suggest, should instead achieve productivity growth through efficient exploitation of existing technologies and imitation of industry leaders. Employment growth in leader firms is encouraged whereas growth of backward firms is not as well received on the stock market.
    Keywords: Distance to frontier, Strategy, Market value, Innovation, Firm Growth
    JEL: L25 L21 D21 O31
    Date: 2008–06–03
  5. By: Marinucci, Marco
    Abstract: This paper faces two questions concerning Joint Ventures (JV) agreements. First, we study how the partners contribution affect the creation and the profit sharing of a JV when partners' effort is not observable. Then, we see whether such agreements are easier to enforce when the decision on JV profit sharing among partners is either delegated to the independent JV management (Management Sharing) or jointly taken by partners (Coordinated Sharing). We find that the firm whose effort has a higher impact on the JV's profits should have a larger profit shares. Moreover, a Management sharing ensures, at least in some cases, a wider range of self-enforceable JV agreements.
    Keywords: joint ventures; strategic alliances; ownership structure; asymmetries.
    JEL: L14 L13 D43 L22
    Date: 2008–04
  6. By: Nikolaos Georgantzís (LEE-LINEEX, Universitat Jaume I); Constantine Manasakis (Department of Economics, University of Crete, Greece); Evangelos Mitrokostas (Department of Economics, University of Crete); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: Often, deviations of firm behavior from profit maximization are the result of managerial incentive contracts. We study the endogenous emergence of incentive contracts used by firm owners to delegate the strategic decisions of the firm. These contracts are linear combinations either of own firm's profits and revenues, or own and rival firms' profits. A two- and three-stage game are studied depending on whether owners commit or not to a certain contract type before setting the managerial incentives and the level of output to produce in the market. We report experimental results which confirm some of the predictions of the model, especially those concerning owners' preference for relative performance incentives over profit-revenue contracts. Neglected behavioral aspects are proposed as possible explanation of some divergence between the theory and the experimental evidence, more specifically the relation between contract terms and managers' output choices
    Keywords: Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts.
    JEL: D43 L21
    Date: 2008–06–05
  7. By: Srholec, Martin (TIK, and CAS, Norwegian Academy of Science and Letters)
    Abstract: Innovation is a multilevel phenomenon. Not only characteristics of firms but also environment within which firms operate matter. Although this has been for long recognized in the literature, a quantitative test that explicitly concerns the hypothesis that framework conditions affect innovativeness of firms remains lacking. Using a large sample of firms from many developing countries, we estimate a multilevel model of innovation that integrates explanatory factors at different levels of the analysis. Apart from various firm’s characteristics, national economic, technological and institutional conditions directly predict the likelihood of firms to innovate.
    Keywords: Innovation, Technological Capability, Multilevel Modeling, Institutions, Developing Countries
    JEL: C30 E11 O30
    Date: 2008
  8. By: Olivier Debande (European Investment Bank, Luxembourg); Jean-Luc De Meulemeester (Université Libre de Bruxelles and SKOPE, University of Oxford)
    Abstract: In this paper, we analyze a bidimensional quality competition between two higher education sectors characterised by different preferences (academic vs. vocational) as well as cost structures, and its impact on curriculum’s provision (type and quality), both in decentralised and social welfare maximisation settings. The students are heterogenous in terms of their valuation of quality and their intellectual type. We try to illustrate in this abstract setting some stylized facts as academic drift of vocational institutions as well as addressing more normative issue as the relative merits of binary or unitary models of higher education
    Keywords: Higher education, competition, vertical and horizontal differentiation
    JEL: I21 L13 N30
    Date: 2008–05
  9. By: Blecker, Thorsten; Abdelkafi, Nizar; Raasch, Christina
    Abstract: This paper extends the principles of open source software development to a non-industry-specific level by introducing the Open Source Innovation (OSI) model. OSI exhibits main differences to other related models and concepts such as the private-collective model, commons-based peer production, R&D networks and is therefore an innovation model in its own right. In order for OSI projects to be successful, numerous factors need to be fulfilled. We make the distinction between four categories of factors: economic, technical, legal, and social. In each category, we differentiate between enabling and sustaining factors. The enabling factors must be met at the beginning of the project, whereas the sustaining factors must be satisfied as the project progresses.
    Keywords: OSI; open source innovation; R&D
    JEL: O32 L17 O3 O31
    Date: 2008
  10. By: Georg Gebhardt; Felix Höffler (Department of Econmics, University of Munich, Ludwigstr. 28 (Rgb), D-80539 Munich; Chair of Regulatory Economics, WHU - Otto Beisheim School of Management - Burgplatz 2, 56179 Vallendar , Germany)
    Abstract: Prices may differ between regional markets if transport capacities are limited. We develop a new approach to determine to which extent such differences stem from limited participation in cross-border trader rather than from bottlenecks. We derive a theoretical integration benchmark for the typical case where transportation markets clear before the product markets, using Grossman's (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis: Capacity prices contain too little information about spot price dierential; this indicates that well informed traders do not engage in cross-border trade.
    Keywords: Market integration, electricity markets, interconnector, competition policy, rational expectations equilibrium
    JEL: G14 D84 L94
    Date: 2008–05
  11. By: Reddy Nalla, Vijayender; Veen, Jack van der; Venugopal, Venu (Nyenrode Business Universiteit)
    Abstract: In this paper we design contract mechanisms to increase the efficiency of product line decisions in a Supply Chain (SC). A two stage SC with a buyer and the supplier is considered. The end consumers are comprised of two segments with different willingness to pay. The final demand and the segments’ willingness to pay are assumed to be deterministic. Two different settings are analyzed: A generalized setting where the end consumer’s willingness to pay is proportional to the quality of the product and the second is a specialized case where the consumer’s willingness to pay is independent of the quality of the product. It is demonstrated that in both the settings a decentralized SC stocks less number of product variants when compared to centralized SC. Marketing literature suggests that the so-called “slotting allowance” is a mechanism to increase the efficiency of product line decisions. However, the literature on slotting allowance does not address the issue of coordination and win-win. In this paper we discuss the revenue and profit sharing mechanisms. It is shown that not only these mechanisms coordinate the SC but that they also provide win-win to both players
    Keywords: Product line decisions, Contract mechanisms, Channel coordination & win-win.
    Date: 2008
  12. By: Heinz Hollenstein (WIFO)
    Abstract: The aim of the paper is, firstly, to identify a number of strategies Swiss firms pursue by performing foreign R&D, expecting that firms, in many instances, are driven by a combination of several motives ("mixed strategies"). Secondly, we ask whether foreign and domestic R&D are substitutes or complements. Thirdly, we draw some policy conclusions based on results for direct and indirect home-country effects of foreign R&D. By applying cluster analysis, we identified four specific patterns of motives of foreign R&D. In a second step, we investigated whether these clusters effectively may be interpreted as specific types of R&D strategies. To this end, the clusters were characterised in terms of a large number of variables, which, according to the OLI paradigm of FDI, determine foreign R&D. We found that the patterns of the four clusters systematically differ with respect to these theory-related variables. Some clusters represent, in terms of motives, broad-based mixed strategies, whereas others are strongly focused. It turns out that foreign R&D strategies that primarily aim at exploiting capabilities of the domestic headquarters dominate, whereas cost-reducing strategies are of very minor importance. In case of the other two strategies knowledge sourcing is a constituent element, in the first one, knowledge sourcing is at the core, in the second case it is an important element in the frame of a broad-based strategy. The relative importance of the four strategies implies that, on balance, foreign and domestic R&D are complements. Notwithstanding this positive result, it is sensible to take policy actions supporting the economy to capitalise even more on outward FDI in R&D. Policy basically should aim at securing the attractiveness of Switzerland as a location for R&D-intensive headquarters of firms performing foreign R&D, and at enhancing knowledge spill-overs from headquarter companies to other domestic firms. The five categories of measures we recommend are part of a framework-oriented policy design rather than of a more interventionist concept.
    Keywords: Internationalisation of R&D Motives of foreign R&D Foreign R&D strategies Knowledge spillovers Home-country effects of outward FDI in R&D
    Date: 2008–03–31

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