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on Microeconomics |
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Issue of 2009‒03‒14
twelve papers chosen by Joao Carlos Correia Leitao Technical University of Lisbon |
| By: | Joanna Poyago-Theotoky (Department of Economics, Loughborough University and RCEA); Khemarat Talerngsri Teerasuwannajak (Faculty of Economics, Chulalongkorn University) |
| Abstract: | We study firms' preferences towards intellectual property rights (IPR) regimes in a North-South context, using a simple duopoly model where a 'North' and a 'South' firm compete in a third market. Unlike other contributions in this field, we explicitly introduce the South's capability to undertake cost-reducing R&D, but maintain the South's inferiority in utilizing and managing its R&D. In contrast to traditional results, we show that the North may encourage lax IPR protection provided that its South rival's R&D productivity is sufficiently high, while the South may find it in its best interest to strictly enforce IPR protection if its R&D productivity is low. In this sense, our results do not support the idea of universal or uniform IPR protection regime. In addition, we find that if firms are allowed to agree on any level of information exchange when IPR protection is strictly enforced, such an exchange can always be established as long as each firm is ensured that what it gets to utilize in return is greater than a half of what it gives to its rival. |
| Keywords: | intellectural property rights (IPRs), cost-reducing R&D, R&D productivity, information exchange. |
| JEL: | O34 F13 O32 O38 L13 D43 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2009_06&r=mic |
| By: | Legros, Patrick; Newman, Andrew |
| Abstract: | We construct a price-theoretic model of firms' integration decisions under perfect competition and study their interplay with consumer demand and welfare. Integration is costly to implement but is effective at coordinating production decisions. The price of output influences the ownership structure chosen: there is an inverted-U relation between the degree of integration and product price. Ownership in turn affects output: integration is more productive than non-integration at low prices, and less productive at high prices. If the managers deciding organizational design have full claim to firm revenues, market equilibrium ownership choices will be second-best efficient. When managers have less than a full claim on profits, however, total welfare may sometimes be increased by a social planner who could force some firms to reorganize. The price mechanism tends to correlate reorganizations across firms and generates external effects of technological shocks: productivity changes in some firms may have little effect on their own organization, while inducing changes of ownership in the rest of the industry. Terms of trade in supplier markets also affect ownership structure; entry of low-cost suppliers may induce reorganizations that raise prices. The model can generate coexistence of different ownership structures, even among ex-ante identical firms. |
| Keywords: | decision rights; incomplete contracts; integration; ownership; price theory |
| JEL: | D21 D41 D86 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7211&r=mic |
| By: | Uwe Dulleck; Rudolf Kerschbamer; Matthias Sutter |
| Abstract: | Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated. |
| Keywords: | Credence goods, Experiment, Liability, Verifiability, Reputation, Competition |
| JEL: | C72 C91 D40 D82 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2009-03&r=mic |
| By: | Frank A.G. den Butter (VU University Amsterdam); Seung-gyu Jo (VU University Amsterdam) |
| Abstract: | In the economics profession there is a fierce debate whether industrial and innovation policy should be targeted to specific sectors or firms. This paper discusses the welfare effects of such targeted policies from the perspective of strategic game theory of the firm. A theoretical case for picking winners through a preferential innovative policy is discussed in a third-market international trade model, which is shown to hold without evoking retaliation from foreign competitors. However, in practice information uncertainties remain a concern. The question whether in this case ‘backing winners’ is a wise policy option depends on the characteristics of the information asymmetries and on the extent the government is able to design selection procedures which minimize the transaction costs that may be caused from the market participants’ opportunistic behavior. |
| Keywords: | Innovation policy; R&D subsidies; strategic trade policy; asymmetric information; spill-over effects |
| JEL: | C73 F12 O24 O32 |
| Date: | 2009–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090012&r=mic |
| By: | Martin Peitz; Markus Reisinger (Department of Economics, University of Mannheim, 68131 Mannheim, Germany; Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Germany) |
| Abstract: | This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly. We find that in the short run, i.e. when the number of firms in both markets is exogenous, the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive. However, both over- and undershifting are more pronounced, potentially to a very large extent. Instead, in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly. As a result of this, a tax increase is more likely to be welfare reducing. We also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run. We show that it is normally more efficient to tax downstream. |
| Keywords: | Specific Tax, Ad Valorem Tax, Value-Added Tax, Tax Incidence, Tax Efficiency, Indirect Taxation, Imperfect Competition, Vertical Oligopoly. |
| JEL: | H22 H32 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:255&r=mic |
| By: | Agnès Bénassy-Quéré; Lionel Fontagné; Horst Raff |
| Abstract: | We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs costs mostly in euros. We construct and calibrate a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment, and how this affects profit margins and volumes. We also explore the effects on the long-run dynamics of competition. We conclude that due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers through higher prices. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry |
| Keywords: | exchange rates, pass-through, oligopoly |
| JEL: | F31 L13 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1488&r=mic |
| By: | James J. Anton; Gary Biglaiser |
| Date: | 2009–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:814577000000000169&r=mic |
| By: | Mariana Lopes (Faculdade de Economia, Universidade do Porto); Aurora A.C. Teixeira (CEFUP, Faculdade de Economia, Universidade do Porto; INESC Porto) |
| Abstract: | Open Innovation is a flow of inputs and outputs of knowledge and technology which favours, at the firm level, the acceleration of the innovation process, as well as the establishment and penetration of firms in new markets. This type of innovation incorporates technological innovation from internal and external sources, as well as different ways to access markets. The empirical studies in the area reveal that there is a significant bias in favour of countries of technological frontier, such as the United States, Finland, the Netherlands, Germany or Sweden. The present study aims at covering this gap in literature by examining firms in a country of intermediate technology development – Portugal. Based on 70 innovative firms located in Portugal we found that open innovation is only partially diffused throughout these firms. In addition, open innovation is more widespread in terms of external absorption of knowledge/ technology rather than in terms of knowledge/technology transfer. This result may indicate lack of awareness about the economic potential of making available to third parties the technologies internally created. This may require a different approach to organization/management of R&D, in particular, and of innovation, in general. |
| Keywords: | Open Innovation; Intermediate technology development; Portugal. |
| JEL: | O32 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:314&r=mic |
| By: | Isao Ishida (Faculty of Economics and Graduate School of Public Policy, University of Tokyo); Toshiaki Watanabe (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition. model. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2009cf609&r=mic |
| By: | Stefan Bühler; Dennis L. Gärtner |
| Abstract: | This paper provides a theoretical rationale for non-binding retail price recommendations (RPRs) in vertical supply relations. Analyzing a bilateral manufacturer-retailer relationship with repeated trade, we show that linear relational contracts can implement the surplusmaximizing outcome. If the manufacturer has private information about production costs or consumer demand, RPRs may serve as a communication device from manufacturer to retailer. We characterize the properties of efficient bilateral relational contracts with RPRs and discuss extensions to settings where consumer demand is affected by RPRs, and where there are multiple retailers or competing supply chains. |
| Keywords: | vertical relationships, relational contracts, asymmetric information, price recommendations |
| JEL: | D23 D43 L14 L15 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2009:2009-02&r=mic |
| By: | Kurokawa, Yoshinori |
| Abstract: | The number of firms and the wage inequality increased in U.S. manufacturing industries after the late 1970s and early 1980s, when the so-called "Carter/Reagan deregulation" was implemented. This paper provides a possible theoretical explanation for this observed relationship between the number of firms and the wage inequality on the basis of fixed cost. By modifying a variety model, we show that lowering the fixed cost of entry increases the variety of inputs used by the final good. The skill premium then rises through variety-skill complementarity. Our model also shows that the size of a firm decreases and the real wage of low-skilled labor does not necessarily decline, which are compatible with U.S. observations. |
| Keywords: | Fixed cost; The number of firms; Skill premium; Variety-skill complementarity |
| JEL: | L51 L13 J31 |
| Date: | 2008–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14014&r=mic |
| By: | David B. Ridley |
| Date: | 2009–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:814577000000000174&r=mic |