nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒11‒18
eleven papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Productivity Dynamics and the Role of “Big-Box” Entrants in Retailing By Maican, Florin; Orth, Matilda
  2. The effects of R&D tax credits on patenting and innovations By Ådne Cappelen, Arvid Raknerud and Marina Rybalka
  3. The Impact of Organizer Market Structure on Participant Entry Behavior in a Multi-Tournament Environment By Soiliou Namoro; Timothy Mathews
  4. The Impact of M&A on Technology Sourcing Strategies By Elena Cefis
  5. Innovation, Integration and Product Proliferation - Empirical Evidence for the Agri-Food Industry By Karantininis, Kostas; Sauer, Johannes; Furtan, William Hartley
  6. Vertical Differentiation and Credence Goods: Harmonized Labeling and Gains from International Integration By SHELDON, Ian; Roe, Brian
  7. The Biotechnology Sector: "Bounds" to Market Structure By SHELDON, Ian
  8. Domestic R&D Employment Effects of Offshoring R&D Tasks: Some Empirical Evidence from Finland By Jyrki Ali-Yrkkö; Matthias Deschryvere
  9. Globalization and innovation in emerging markets By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
  10. A Two-Stage Duopoly Game with Ethical Labeling and Price Competition when Consumers differ in Preferences By Fanelli, Domenico
  11. Multinationals in the Knowledge Economy - a case study of AstraZeneca in Sweden By Andersson, Martin; Johansson, Börje; Karlsson, Charlie; Lööf, Hans

  1. By: Maican, Florin (Department of Economics, School of Business, Economics and Law, Göteborg University); Orth, Matilda (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Entry of large (“big-box”) stores along with a drastic fall in the total number of stores is a striking trend in retail markets. In this paper we provide a dynamic structural model, controlling for unobserved prices and local market characteristics, to estimate total factor productivity in retail markets. Then we evaluate how increased competition from large entrants influences incumbents’ productivity in local markets. Using detailed data on retail food stores in Sweden, we find that net entry substantially contributes to industry productivity growth. In local markets, productivity dispersion increases as a consequence of large entrants, i.e., low productive incumbents become less productive whereas high productive incumbents become more productive. We conclude that large entrants play a central role in explaining productivity differences across stores.
    Keywords: Retail markets; Imperfect competition; Industry dynamics; TFP; Space productivity; Dynamic structural model
    JEL: C24 L11 O30
    Date: 2008–11–12
  2. By: Ådne Cappelen, Arvid Raknerud and Marina Rybalka (Statistics Norway)
    Abstract: Norwegian business spending on R&D is low by OECD standards. To stimulate business R&D, in 2002 the Norwegian government introduced a tax-based incentive, SkatteFUNN. We analyze the effects of SkatteFUNN on the likelihood of innovating and patenting. Using a rich database for Norwegian firms, we find that projects receiving tax credits result in the development of new production processes and to some extent the development of new products for the firm. Firms that collaborate with other firms are more likely to be successful in their innovation activities. However, the scheme does not appear to contribute to innovations in the form of new products for the market or patenting.
    Keywords: Tax credits; R&D; Patenting; Innovation; Self-selection
    JEL: C33 C52 D24 O38
    Date: 2008–11
  3. By: Soiliou Namoro; Timothy Mathews
    Abstract: . . .
    Date: 2008–10
  4. By: Elena Cefis
    Abstract: The paper investigates the effects of Mergers and Acquisitions (M&A) on corporate research and development (R&D) strategies using Community Innovation Survey (CIS) data on the Dutch manufacturing sector. The focus of the research is whether M&A affect corporate innovation strategies, favouring in-house R&D and innovation expenses versus external technological sourcing. The results show that M&A activities have a positive and significant impact on innovation investments by firms, and particularly on R&D intensity and total expenditure on innovation. M&A affect corporate innovation strategies, favouring in-house R&D versus external technological sourcing. Firm post-merger behaviour favours the consolidation of the knowledge, competences and capabilities that have been acquired by merging with or by buying another firm, confirming that the reasons for a merger or acquisition are most often related to firms' innovative performance. Following involvement in a M&A, firms tend primarily to focus on fully integration of their resource bases in order to enable them to produce and sell innovative products that are new to the market.
    Keywords: Technology sourcing; Innovation; M&A; Heckman two-stage; Bi-Tobit.
    JEL: D21 O31 O32 L22
    Date: 2008–11–11
  5. By: Karantininis, Kostas; Sauer, Johannes; Furtan, William Hartley
    Abstract: While mergers, both horizontal and vertical, have been shaping the landscape of the agri-food industry in Europe, the implications of the changing market structure on the level of innovation has not been studied yet. In this paper we deal with the link between innovation and market structure using the empirical example of the Danish agri-food industry. The purpose of this paper is two-fold. First we test for the importance of vertical integration on innovation. While there exist several studies on this linkage, to our knowledge, this is the first that deals with the agri-food industry. Secondly, we examine both product proliferation and innovation. To our knowledge, there are no other similar studies that examine both aspects using the same data set. We follow the hypothesis put forward by Armour and Teece (1980) that vertical integration enhances technological innovation, mainly because vertical integration may resolve hold-up problems. Our paper is related also to recent work by Weiss and Witkopp (2005) on the German food industry, although their work is mostly related to the role of the retail sector. We are able to examine both innovation (measured as investment on R&D) as well as product proliferation (measured as number of new products). We also examine the effects of network relationships and the importance of countervailing power. We use data from an extensive survey of 444 Danish firms over two years, 2000 and 2005 to estimate two different models: a bootstrapped zero-inflated Poisson regression and a robust Heckman sample selection model. The results verify the hypotheses formulated for both models with various degrees of significance.
    Keywords: Innovation, Vertical Integration, Product Proliferation, Agribusiness, Agribusiness,
    Date: 2008
  6. By: SHELDON, Ian; Roe, Brian
    Abstract: Using a model of vertical product differentiation, we show under what institutional circumstances welfare gains will be maximized as economies integrate and harmonize labeling and certification policies for credence goods. Specifically, we show that harmonized mandatory, exclusive discrete labeling will not maximize the gains from economic integration, i.e., the choice of labeling regime can have a negative effect on market structure if firms choose to exit, reducing the range and quality of goods in the integrated market.
    Keywords: Vertical differentiation, credence goods, harmonized labeling, economic integration, International Relations/Trade, F12, F21, L13,
    Date: 2008
  7. By: SHELDON, Ian
    Abstract: This paper examines whether it makes sense to consider Sutton's "bounds" approach as a candidate theory for explaining the recent evolution of market structure in the biotechnology sector, and to speculate whether market structure will change if the industry begins to introduce second-generation GM products that are of more direct benefit to consumers. A key result is that the market structure is bounded in the presence of endogenous sunk costs, implying care should be taken when inferring any correlation between R&D expenditure and seller concentration in the biotechnology sector.
    Keywords: Biotechnology, market structure, Research and Development/Tech Change/Emerging Technologies, L1, L11,
    Date: 2008
  8. By: Jyrki Ali-Yrkkö; Matthias Deschryvere
    Abstract: ABSTRACT : This study empirically explores whether R&D offshoring affects the domestic R&D employment at the firm level. Overall, the Finnish survey data suggest that the impact of R&D internationalization on domestic R&D employment depends on the mode of internationalization (in-house offshoring vs. offshore outsourcing vs. in-house expansion of R&D abroad). Moreover, manufacturing and service firms are found to be different when it comes to R&D internationalization and its domestic employment effects. In the manufacturing sector, especially in-house offshoring of R&D has a significant negative impact on the plan to increase R&D employment. But the relationship between the in-house expansion of R&D abroad and domestic R&D employment turns out to be complementary. In the service sector, it is in the first place offshore outsourcing of R&D that has a significant negative impact on the plan to increase R&D employment. A final result supports the view that R&D does not always follow production but that a strong location link between production and R&D does have a significant negative effect on the domestic R&D employment.
    Keywords: globalization, internationalization, outsourcing, offshoring, job loss, R&D, spillovers, research, relocation, domestic, home-country
    JEL: J6 J3
    Date: 2008–11–06
  9. By: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
    Abstract: Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms' efforts to innovate (raise their capability) by upgrading their technology, improving the quality of their product or service, or acquiring certification. We find that competition has a negative effect on innovation, especially for firms further from the efficiency frontier, and we do not find support for an inverted U effect of competition on innovation. We show that the supply chain of multinational enterprises and international trade are important channels for domestic firms' innovation. We detect no evidence that firms in a more pro-business environment are more likely to display a positive or inverted U relationship between competition and innovation, or that they are more sensitive to foreign presence.
    JEL: F23 O16 P23
    Date: 2008–11
  10. By: Fanelli, Domenico
    Abstract: We study a two-stage duopoly game, where, at the first stage, firms choose if adopting or not a social responsibility label. The firm who adopts the social responsibility label (the ethical firm) has high marginal costs, while the firm who doesn’t adopt it (the standard firm), supports low marginal costs. After the first stage, each firm knows the choice made by its rival and, at the second stage of the game, chooses prices. Consumers are divided into two groups: the group of consumers who prefers buying the good by the ethical firm and the group of consumers who prefers buying the good by the lowest price firm. Depending on the difference between the high and the low marginal cost and on the proportions of the two groups of consumers, the game has two asymmetric or two symmetric Sub-game Perfect Nash Equilibria. Symmetric Nash Equilibria imply that both firms makes the same choice at the first stage of the game (both decide to be ethical or standard), while asymmetric Nash Equilibria imply different choices at the first stage of the game: one of the two firms chooses to be ethical and the other standard. We analyzed the same model of Davies (2005) changing one of its assumption: the proportions of the two groups of consumers are not fixed a priori. With this new assumption, results of Davies (2005) are no more satisfied. In Davies (2005), ethical labeling cannot eliminate standard production when there are two firms and the marginal cost of ethical firm is higher than the marginal cost of standard firm: in equilibrium, one of the two firms always chooses to be standard at the first stage of the game. In our model (a duopoly where marginal cost of the ethical firm is higher than marginal cost of standard firm) instead it exists a condition on the model’s parameters such that ethical labeling, in equilibrium, can eliminate standard production: if that particular condition is satisfied, it exists a symmetric subgame perfect Nash Equilibrium where both firms chooses, at the first stage of the game, to be ethical.
    Keywords: Social Responsibility; Ethical labeling; Price Competition; Duopoly
    JEL: M14 D64 L15 D43
    Date: 2008–11–12
  11. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Karlsson, Charlie (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This report presents a case study of the role of a large R&D intensive multinational company for a small open economy. The case study examines the role of AstraZeneca in the Swedish economy, i.e. an economy dominated by multinational companies. The purpose of the report is to analyze the interaction of AstraZeneca’s units in Sweden with the rest of the Swedish economy, and the Swedish innovation system in particular. We analyze the company’s role as an employer in the private sector, its transaction links with other Swedish firms and its role for Sweden’s exports. In a second perspective we focus on the company’s role in the Swedish knowledge economy and innovation system. The report analyses the company as a node for knowledge flows in the Swedish economy and innovation system, and its role as an employer of highly educated and skilled workers in Sweden.Our analysis of the Swedish units’ interaction with the rest of the Swedish economy shows that ’traditional’ couplings in the form of transactions with Swedish suppliers are limited. It is instead the company’s position in the ‘knowledge economy’ that makes its presence in Sweden important.
    Keywords: R&D; multinationals; innovation systems; innovation networks; R&D networks; pharmaceutical; anchor-tenant; spillovers; knolwedge flows
    JEL: D57 F14 F23 L14 L22 L65 O12 O31 O32
    Date: 2008–11–12

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