nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒07‒30
thirteen papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Drivers and Effects of Internationalising Innovation by SMEs By Rammer, Christian; Schmiele, Anja
  2. Is there a U-shaped Relation between Competition and Investment? By Dario Sacco
  3. R&D, firm size, and product innovation dynamics. By Marco Corsino; Giuseppe Espa; Rocco Micciolo
  4. The Circular City with Heterogeneous Firms By Marco Alderighi; Claudio A. Piga
  5. R&D Partnerships and Capability of Innovation of Small and Medium-Sized Firms in Zhongguancun, Beijing: The Power of Proximity By Nobuaki Hamaguchi; Yoshihiro Kameyama
  6. A Case for Affirmative Action in Competition Policy By VILLENEUVE, BERTRAND; ZHANG, VANESSA YANHUA
  7. Loss leader or low margin leader? Advertising and the degree of product differentiation By Simbanegavi, Witness
  8. More open than open innovation? Rethinking the concept of openness in innovation studies. By Julien Pénin
  9. Real Options and Technology Choice under Bertrand Competition By BOBTCHEFF Catherine
  10. How Compatible is Perfect Competition with Transmission Loss Allocation Methods? By Jing Dai; Yannick Phulpin; Vincent Rious; Damien Ernst
  11. On bidding markets: the role of competition By Gino Loyola
  12. Resource and Revenue Management in Nonprofit Operations By Francis de Véricourt; Miguel Sousa Lobo
  13. Optimal Bundle Pricing with Monotonicity Constraint By Grigoriev Alexander; Loon Joyce van; Sviridenko Maxim; Uetz Marc; Vredeveld Tjark

  1. By: Rammer, Christian; Schmiele, Anja
    Abstract: This paper investigates the drivers and the effects of the internationalisation of innovation activities in SMEs based on a large data set of German firms covering the period 2002-2007. We look at different stages of the innovation process (R&D, design, production and sales of new products, and implementation of new processes) and explore the role of internal resources, home market competition and innovationrelated location advantages for an SME’s decision to engage in innovation activities abroad. By linking international innovation activities to firm growth in the home market we try to identify likely internationalisation effects at the firm level. The results show that export experience and experience in knowledge protection are highly important for international innovation activities of SMEs. Fierce home market competition turns out to be rather an obstacle than a driver. High innovation costs stimulate internationalisation of non-R&D innovation activities, and shortage of qualified labour expels production of new products. R&D activities abroad and exports of new products spur firm growth in the home market while there are no negative effects on home market growth from shifting production of new products abroad.
    Keywords: Internationalisation of Innovation, Globalisation, SMEs, Effects of Innovation, Absorptive Capacities, Market Structure
    JEL: F23 L22 L25 O31 O32 O47
    Date: 2008
  2. By: Dario Sacco (Socioeconomic Institute, University of Zurich)
    Abstract: We argue that, in a simple setting, the relation between the intensity of competition and cost-reducing investment is U-shaped. We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. We first show that, except for firms that are much less efficient than the competitor, investment in the subgame-perfect equilibrium is minimal for intermediate levels of competition, which is inversely parameterized by the extent of product differentiation. An extensive set of laboratory experiments also provides support for the U-shape, both for symmetric firms and for leaders. Also consistent with predictions, the relation is negative for firms that are lagging behind.
    Keywords: Investment, intensity of competition, experiment
    JEL: C92 L13 O31
    Date: 2008–07
  3. By: Marco Corsino; Giuseppe Espa; Rocco Micciolo
    Abstract: This paper addresses a debated issue in the economics innovation literature, namely the existence of increasing return to R&D expenditures and firm size on innovation output. It further explores how structural characteristics of the firm as well as contextual factors affect the dynamics of product innovation over a relatively long period of time. Taking advantage of an original and unique database comprising innovation data recorded on a monthly base we show that: (i) a negative binomial distribution model is able to predict with great accuracy the probability of having a given number of product announcement sent out in a month; (ii) constant returns to size and R&D expenditure may reasonably characterize the innovation production function of sampled firms; (iii) vertically integrated manufacturers as well as producers operating a larger product portfolio exhibit a higher propensity to introduce new products than their specialized competitors.
    Date: 2008–06
  4. By: Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.
    Keywords: Localized competition; market effciency, cost heterogeneity; large markets.
    JEL: L11 D61
    Date: 2008–07
  5. By: Nobuaki Hamaguchi (Research Institute for Economics and Business Administration, Kobe University); Yoshihiro Kameyama (The International Centre for the Study of East Asian Development (ICSEAD))
    Abstract: We examine the impact of research partnerships on a firm's own R&D capability along with the context of the importance of geographical proximity using original survey data obtained from small and medium-sized firms in Zhongguancun Science Park (ZSP). This study develops an analytical framework related to the impact of research partnerships on a firm's R&D capability. Results show that research cooperation with universities and research institutes and small and medium-sized firms enhances the R&D capability of individual firms when the partners are located nearby, although distance has no significant effect on cooperation with large firms.
    Keywords: research cooperation, spillovers, R&D capability
    JEL: O32 R12 R39
    Date: 2008–07
    Abstract: We analyze the trade-off faced by competition authorities envisaging a one-shot structural reform in a capitalistic industry. A structure is (1) a sharing of productive capital at some time and (2) a sharing of sites or any other non-reproducible assets. The latter represent opportunities. These two distinct dimensions of policy illustrate the importance of a dynamic theory in which firms may differ in several respects. Though equalization of endowments and rights is theoretically optimal, realistic constraints force competition authorities to adopt second-best solutions. Affirmative action here appears to explain why helping the disadvantaged contributes maximally to social surplus.
    Keywords: Competition policy; capacity accumulation; Cournot competition; asymmetric duopoly; regulatory consistency; differential games.
    JEL: L13 L40 C73
    Date: 2008–07–23
  7. By: Simbanegavi, Witness
    Abstract: This paper attempts to isolate the conditions that give rise to loss leader pricing. I show that for sufficiently low distance between firms, the advertised good is priced below cost irrespective of whether firms advertise the same or different products. Instead, if products are sufficiently differentiated, loss leader pricing may result only if firms advertise the low reservation value product, otherwise the advertised good is a low margin leader. Thus, whether the advertised good is a loss leader or a low margin leader is primarily a function of the extent of differentiation between competing firms.
    Keywords: Informative advertising; loss leader; low margin leader; product differentiation
    JEL: M3 L1
    Date: 2008
  8. By: Julien Pénin
    Abstract: This paper re-examines the concept of open innovation developed in organization sciences (Chesbrough, 2003a). We claim that this paradigm, which insists on the distributive nature of innovation among a wide range of heterogeneous actors, does not put enough emphasis on the condition of access to knowledge. Yet, the open dimension of knowledge is a very important feature to sustain a collective mode of innovation. We propose therefore a stronger definition of open innovation, which is based on three constitutive characteristics: (i) Firms voluntarily release knowledge; (ii) Knowledge is open, i.e. is available to all interested parties without discrimination; (iii) dynamic interactions take place among the stakeholders to enrich the open knowledge base. Examples that fit our definition of open innovation are open science, user centered innovation (von Hippel, 2005), free-libre open source software, collective invention (Allen, 1983), etc. We conclude with a discussion on the role of IPR to secure open innovation.
    Keywords: open source, free software, intellectual property rights (IPR), open innovation, collective invention.
    Date: 2008
  9. By: BOBTCHEFF Catherine
    Date: 2008–07
  10. By: Jing Dai (SUPELEC-Campus Gif - SUPELEC); Yannick Phulpin (SUPELEC-Campus Gif - SUPELEC); Vincent Rious (SUPELEC-Campus Gif - SUPELEC); Damien Ernst (Université de Liège - Université de Liège)
    Abstract: This paper addresses the problem of transmission loss allocation in a power system where the generators, the demands and the system operator are independent. We suppose that the transmission losses are exclusively charged to the generators, which are willing to adopt a perfectly competitive behavior. In this context, their offers must reflect their production costs and their transmission loss costs, the latter being unknown beforehand and having to be predicted. We assume in this paper that the generators predict their loss costs from the past observations by using a weighted average of their past allocated costs. Under those assumptions, we simulate the market dynamics for different types of transmission loss allocation methods. The results show that the transmission loss allocation scheme can lead to a poorly efficient market in terms of social welfare.
    Keywords: Transmission loss allocation;agent-based simulation; market efficiency;electricity market
    Date: 2008–05–28
  11. By: Gino Loyola
    Abstract: This paper analyzes the effects of industrial concentration on bidding behaviour and hence, on the seller´s expected proceeds. These effects are studied under the CIPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into four types: a competition effect, an inference effect, a winner´s curse effect and a sampling effect. The properties of these effects are discussed and conditions for (non) monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures.
    Keywords: Auctions, Competition, Affiliation, Inference
    JEL: C62 D44 D82 L41
    Date: 2008–01
  12. By: Francis de Véricourt (ESMT European School of Management and Technology); Miguel Sousa Lobo (Duke University)
    Abstract: Nonprofit firms sometimes engage in for-profit activities for the purpose of generating revenue to subsidize their mission activities. The organization is then confronted with a consumption vs. investment tradeoff, where investment corresponds to providing capacity for revenue customers, and consumption corresponds to serving mission customers. Exemplary of this approach are the Aravind Eye Hospitals in India, where profitable paying hospitals are used to subsidize care at free hospitals. We model this problem as a multi-period stochastic dynamic program. In each period, the organization must decide how much of the current assets should be invested in revenue-customer service capacity, and at what price the service should be sold. We provide sufficient conditions under which the optimal capacity and pricing decisions are of threshold type. Similar results are derived when the selling price is fixed but the banking of assets from one period to the next is allowed. We compare the performance of the optimal threshold policy with heuristics that may be more appealing to managers of nonprofit organizations, and assess the value of banking and of dynamic pricing through numerical experiments.
    Keywords: capacity allocation, revenue management, dynamic pricing, nonprofit
    Date: 2008–07–03
  13. By: Grigoriev Alexander; Loon Joyce van; Sviridenko Maxim; Uetz Marc; Vredeveld Tjark (METEOR)
    Abstract: We consider the problem to price (digital) items in order to maximize the revenue obtainable from a set of bidders. We suggest a natural monotonicity constraint on bundle prices, show that the problem remains NP-hard, and we derive a PTAS. We also discuss a special case, the highway pricing problem.
    Keywords: operations research and management science;
    Date: 2008

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