nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒04‒18
twenty papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Collective Rights Organizations and Investment in Upstream R&D By Rieko Aoki; Aaron Schiff
  2. Next Generation Access Networks: The Effects of Vertical Spillovers on Access and Innovation By Paula Sarmento; António Brandão
  3. Profit-shifting in Two-sided Markets By Schindler, Dirk; Schjelderup, Guttorm
  4. An Empirical Model of Search with Vertically Differentiated Products By Matthijs R Wildenbeest
  5. Measurement of the Consumer Benefit of Competition in Retail Outlets By MATSUURA Toshiyuki; SUNADA Mitsuru
  6. Upstream Competition and Downstream Buyer Power By Howard Smith; John Thanassoulis
  7. Persistence of Monopoly and Research Specialization By Philipp Weinschenk
  8. Confirmatory News By Elena Panova
  9. Trademarks as an Indicator of Product and Marketing Innovations By Valentine Millot
  10. Competition Between Payment Systems: Results By George Gardner; Andrew Stone
  11. Complementary Reforms of Patent Examination Request System in Japan By Yamaguchi, Isamu; Nagaoka, Sadao
  12. Does Corporate Governance Matter in Competitive Industries? By Xavier Giroud; Holger M. Mueller
  13. Does Innovation Help the Good or the Poor Performing Firms? By Jože P. Damijan; Crt Kostevc; Matija Rojec
  14. Competition Between Payment Systems By George Gardner; Andrew Stone
  15. FDI in Post-Production Services and Product Market Competition By Ishikawa, Jota; Morita, Hodaka; Mukunoki, Hiroshi
  16. The role of demand uncertainty in the two stage Hotelling model By Michal Król
  17. Has the industrial cluster project improved the R&D efficiency of industry-university partnership in Japan? By Nishimura, Junichi; Okamuro, Hiroyuki
  18. R&D Subsidies to Start-ups - Effective Drivers of Patent Activity and Employment Growth? By Uwe Cantner; Sarah Kösters
  19. Financial market pressures, tacit collusion and oil price formation By Aune, Finn Roar; Mohn, Klaus; Osmundsen, Petter; Rosendahl, Knut Einar
  20. Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered By Christian A. Ruzzier

  1. By: Rieko Aoki; Aaron Schiff
    Abstract: We examine third-party collective rights organisations (CROs) such as clearinghouses that license innovations on behalf of inventors when downstream uses require licenses to multiple complementary innovations. We consider two simple royalty redistribution schemes, two different innovation environments and two different antitrust rules. We show that in most cases CROs increase incentives to invest in R&D as they increase profits from licensing. However, incentives to invest of inventors who have the unique ability to develop a crucial component may be weakened. We also show that CROs may increase or decrease expected welfare, and are more likely to be beneficial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low.
    Keywords: Intellectual property, licensing, collective rights organizations, anticommons
    JEL: L24 O31 O34
    Date: 2009–03
  2. By: Paula Sarmento (CEF.UP, Faculdade de Economia, Universidade do Porto); António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto)
    Abstract: The model that we develop here considers that an upstream firm sells a vital input to downstream firms. There are vertical spillovers and two different regulatory policies of the input price: cost oriented regulation and no-regulation. We also admit two alternative market structures: vertical integration and vertical separation. With this setting we study the effects of the spillovers on foreclosure and on the investment of the upstream firm with and without access price regulation in the two market structures. We conclude that in this setting foreclosure is not a necessary outcome and that the investment of the upstream firm depends on the values of the spillovers of each firm. The increase of the investment with regulation is more likely with vertical separation but it can also happen with vertical integration although this is not a typical result.
    Keywords: access price regulation, vertical integration
    JEL: L51 L96
    Date: 2009–04
  3. By: Schindler, Dirk (Universität Konstanz); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We investigate how multinational two-sided platform firms set their prices on intra firm transactions. Two-sided platform firms derive income from two customer groups that are connected through at least one positive network externality from one group to the other. A main finding is that even in the absence of taxation transfer prices deviate from marginal cost of production. A second result of the paper is that it is inherently difficult to establish arm's length prices in two-sided markets. Finally, we find that differences in national tax rates may be welfare enhancing despite the use of such prices as a profit shifting device.
    Keywords: Multinational enterprises; two-sided markets; profit shifting
    JEL: D21 L24
    Date: 2009–04–14
  4. By: Matthijs R Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: This paper presents a non-sequential search model that allows for vertical product differentiation. In the unique symmetric equilibrium firms with different characteristics draw utilities from a common utility distribution, resulting in asymmetric price distributions. The model therefore provides a theoretical rationale for explaining price dispersion as a result of quality differences and search frictions together. More specifically, the model can explain the frequent and asymmetric price changes reported in several empirical papers, but also why some firms have persistently higher prices than others. Using the equilibrium conditions derived from the model, we show how to estimate search costs by maximum likelihood using only prices. The method is applied to a data set of prices for grocery items from supermarkets in the UK. Estimates reveal that most of the observed price variation can be explained by supermarket heterogeneity and that the estimated amount of search is low in this market. We show that ignoring vertical product differentiation results in an overestimation of search costs. Moreover, estimated search costs using a basket of organic items are on average higher than that of a similar non-organic basket. We also simulate how changes in search costs will affect behavior of stores and consumers.
    Keywords: consumer search, product differentiation, price dispersion, structural estimation
    JEL: C14 D83 L13
    Date: 2009–04
  5. By: MATSUURA Toshiyuki; SUNADA Mitsuru
    Abstract: In this paper, we estimate the consumer benefits of competition in the retail industry. In our analysis, we incorporated the service quality of retail outlets as outputs. In Japan, in the process of the deregulation of entry restriction on large-scale retail stores, specialty supermarkets have increased their market share with a low price strategy. At the same time, despite their high prices, convenience stores have increased their market share through 1990s. We demonstrate changes in market share for each retail format are explained by the changes in each formats respective service quality.
    Date: 2009–04
  6. By: Howard Smith; John Thanassoulis
    Abstract: It is often claimed that large buyers wield buyer power. Existing theories of this effect generally assume upstream monopoly. Yet the evidence is strongest with upstream competition. We show that upstream competition can yield buyer power for large buyers by generating supplier-level volume uncertainty - a feature that emerges from case study evidence of upstream competition - so the negotiated price depends on the seller’s cost expectation. By analyzing the effect of market structure changes on seller cost expectations the paper gives insights on three key policy-relevant questions around buyer power: (i) who wields it and under what circumstances (ii) does a downstream merger alter the buyer power of other buyers (so-called waterbed effects); and (iii) how are the incentives to invest in upstream technology altered by the creation of large downstream firms?
    Keywords: Buyer power, Waterbed effects, Bargaining in the supply chain, Milk, Private-label, Supermarkets
    JEL: L13 L42 L66
    Date: 2009
  7. By: Philipp Weinschenk (Max Planck Institute for Research on Collective Goods)
    Abstract: We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.
    Keywords: Persistence of Monopoly, Efficiency Effect, Replacement Effect, Stochastic Innovations
    JEL: L12 O31
    Date: 2009–04
  8. By: Elena Panova
    Abstract: This paper investigates how competition in the media affects the quality of news. In our model, demand for news depends on the market perception of the media's ability to receive correct information: it is positive if and only if news is potentially useful for the voting decision. When the media receives information which contradics commonly shared priors, it either reports this information or it confirms the priors: "most likely, my information is correct, but my potential buyers may be unable to assess the quality of news and attribute it according to common priors". We ask whether competition may help to elicit information from the media. Our answer is positive when news covers issues on which the priors are sufficiently precise, or the follow-up quality assessment is a likely event. However, when news concerns controversial issues and it is hardly possible to asses its quality, competitive pressures induce confirmatory reporting.
    Keywords: Competition in the media, quality of news, common priors, reputational cheap-talk
    JEL: L82 L10 D82
    Date: 2009
  9. By: Valentine Millot
    Abstract: Non-technological innovation is a major factor of competitiveness and productivity growth in the economy, notably in the service industries. However, the measurement of non-technological innovation and of innovation in the service industries is currently very poor, as traditional data sources like R&D or patents do not apply to these types of innovations. This document presents a strong candidate for quantifying non-technological innovation: trademark data. Trademarks constitute a rich and easily accessible source of data. Besides, several studies have shown that they are highly correlated with various innovation variables (patents, share of innovative sales). Lastly, trademarks have a large perimeter of application; they are present in almost every sector of the economy. Trademark data are then likely to convey information on two key (overlapping) aspects of innovation that are not well covered by traditional indicators: innovation in the service sectors and marketing innovation. This paper aims at presenting trademarks, their potential link with innovations and their main statistical properties, to see if they may actually serve as an innovation indicator.<P>Les marques comme indicateur d’innovations de produit et de commercialisation<BR>L’innovation non technologique est un facteur majeur de croissance et de compétitivité, notamment dans les industries de services. Néanmoins, la mesure de l’innovation non technologique et de l’innovation dans les services est à l’heure actuelle très insuffisante, les indicateurs traditionnels tels que les dépenses de R&D ou les brevets ne s’appliquant pas à ce type d’innovation. Ce document présente un candidat de poids pour quantifier l’innovation non-technologique: les données de marques. Les marques constituent une source de données riche et facilement accessible. Par ailleurs, plusieurs études ont montré une forte corrélation entre les marques et différentes variables d’innovation (brevets, part de ventes liées à l’activité innovante). De plus, le périmètre d’application des marques est très étendu, elles sont présentes presque dans tous les secteurs de l’économie. Les marques sont ainsi susceptibles de fournir de l’information sur deux aspects importants de l’innovation (se superposant en partie) que les indicateurs traditionnels couvrent mal: les innovations dans les services et les innovations de commercialisation. Ce document vise à présenter les marques, leur lien potentiel avec l’innovation et leurs principales propriétés statistiques, de manière à déterminer si elles peuvent effectivement servir d’indicateur d’innovation.
    Date: 2009–04–08
  10. By: George Gardner (Reserve Bank of Australia); Andrew Stone (Reserve Bank of Australia)
    Abstract: This paper is the second of two companion pieces. In the first we developed a model of competition between payment systems which extends that of Chakravorti and Roson (2006). Here we turn to the results which can be obtained from the Chakravorti and Roson model, from our extension of it, and from a third family of models which we develop in this paper. We obtain two main sets of findings. First, we shed further light on how competing platforms will set their price level and pricing structure when endogenous multi-homing is allowed on both sides of the market. Our results challenge the general finding in the literature that the greater the propensity of one side of the market to single-home, the more attractive will be the pricing offered to its members by competing platforms. Our results confirm that while this finding generally holds when platforms charge both consumers and merchants on a purely per-transaction basis, it need not hold in the more realistic situation where platforms instead levy flat fees on consumers. Second, we extend findings of Hermalin and Katz (2006) showing that, in certain circumstances, platforms may offer less attractive pricing to the side of the market which holds the choice of payment instrument at the moment of sale.
    Keywords: payments policy; two-sided markets
    JEL: D43 E42 L13 L14
    Date: 2009–04
  11. By: Yamaguchi, Isamu; Nagaoka, Sadao
    Keywords: patent examination, option value, claim, R&D
    JEL: C41 L21 O34
    Date: 2008–12
  12. By: Xavier Giroud; Holger M. Mueller
    Abstract: By reducing the threat of a hostile takeover, business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack, we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. Input costs, wages, and overhead costs all increase after the laws' passage, and only so in non-competitive industries. Similarly, when we conduct event studies around the dates of the first newspaper reports about the BC laws, we find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant stock price impact.
    JEL: G3
    Date: 2009–04
  13. By: Jože P. Damijan; Crt Kostevc; Matija Rojec
    Abstract: Using firm-level innovation data for a large sample of Slovenian firms in the period 1996-2002, the paper finds surprising results that innovation is not benefitting all firms. We find that only manufacturing firms with below average productivity growth (the lowest four deciles) are likely to experience significant benefits from successful innovation, while faster growing firms do not extract any additional benefits from innovation. This evidence demonstrates how innovation can affect the observed convergence of firms in terms of productivity in the manufacturing sector.
    Keywords: research and development, innovation, knowledge spillovers, productivity growth
    JEL: D24
    Date: 2009
  14. By: George Gardner (Reserve Bank of Australia); Andrew Stone (Reserve Bank of Australia)
    Abstract: This paper is the first of two companion pieces examining competition between payment systems. Here we develop a model of competing platforms which generalises that considered by Chakravorti and Roson (2006). In particular, our model allows for fully endogenous multi-homing on both the merchant and consumer sides of the market. We develop geometric frameworks for understanding the aggregate decisions of consumers to hold, and merchants to accept, different payment instruments, and how these decisions will be influenced by the pricing choices of the platforms. We also illustrate a new potential source of non-uniqueness in the aggregate behaviour of consumers and merchants which is distinct from the well-known ‘chicken and egg’ phenomenon – and indeed can only arise in the context of multiple competing platforms. Finally, we briefly discuss how this new source of non-uniqueness may nevertheless shed light on the ‘chicken and egg’ debate in relation to the development of new payment systems.
    Keywords: payments policy; two-sided markets; interchange fees
    JEL: D40 E42 L14
    Date: 2009–04
  15. By: Ishikawa, Jota; Morita, Hodaka; Mukunoki, Hiroshi
    Abstract: Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. A foreign firm faces a higher cost to perform such services than its domestic rival because of the lack of proximity to customers. We explore an international duopoly model in which a foreign firm can reduce its cost for post-production services by foreign direct investment (FDI), or alternatively can outsource such services to its domestic rival. Trade liberalization, if not accompanied by liberalization of service FDI, can hurt domestic consumers and decrease world welfare, but the negative welfare impacts can be mitigated and eventually turned into positive ones as service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is limited compared to the substantial progress already made in trade liberalization.
    Keywords: post-production services, trade liberalization, FDI, outsourcing, international oligopoly
    JEL: F12 F13 F21 F23
    Date: 2008–11
  16. By: Michal Król
    Date: 2009
  17. By: Nishimura, Junichi; Okamuro, Hiroyuki
    Abstract: We evaluate the “Industrial Cluster Project†in Japan initiated by the Ministry of Economy, Trade and Industry (METI) in 2001 in terms of industry-university partnership (IUP), using original questionnaire data of small and medium enterprises (SMEs). In this paper, we use the number of patent applications as the measure of both the performance of the cluster project and the industry-university partnership. Specifically, we test the following hypotheses: 1) The SMEs that participate in the cluster project apply for more patents than those that do not. 2) The effect of participation in the cluster project on R&D productivity is enhanced by collaboration with national universities within the same cluster area. We collected the data of 229 R&D intensive SMEs with up to 300 employees through a survey conducted in 2005. We employ negative binomial regression to test how participation in the cluster project affects R&D productivity, controlling for firm characteristics such as the number of employees, R&D intensity, the number of IUP projects, the dummy variable for collaboration with national universities, the dummy variable for joint R&D, the dummy variable for collaboration within cluster regions, and industry dummies. Moreover, we estimate the treatment effect model and the instrumental variables (IV) regression, considering the possibility that participation in a cluster project is endogenous. We use firm age as an instrumental variable because the cluster project aims at attracting start-ups and young firms. The estimation results can be summarized as follows. First, participation in the cluster projects alone does not affect patent application. Rather, local firms collaborating with partners outside the cluster show higher R&D productivity in general. Second, the cluster participants apply for more patents when they collaborate with national universities in the same cluster region. Further results reveal that, in this case, the quality of applied patents measured by the average number of claims does not significantly decrease, which is not in line with the argument that cluster firms are subject to administrative pressures to show off the performance of the cluster projects.
    Keywords: Industrial cluster, Industry-university partnership (IUP), Small and medium enterprise (SME), R&D, Patent, Japan
    JEL: O23 O32 O38 R38
    Date: 2008–11
  18. By: Uwe Cantner (Friedrich-Schiller-University Jena, Department of Economics, Chair of Economics/Microeconomics); Sarah Kösters (Friedrich-Schiller-University Jena, Department of Economics, DFG RTG 1411 "The Economics of Innovative Change")
    Abstract: The present paper investigates the effectiveness of R&D subsidies given to start-ups. Taking an aggregate view rather than evaluating a single program, we estimate the impact of R&D subsidies on start-ups' employment growth and their patent output. A unique data set on start-ups in the East German county of Thuringia allows us to focus on those start-ups that conduct R&D within the first three business years. We conduct propensity score matching to address the selection bias between subsidized and non-subsidized start-ups. We find that R&D subsidies lead to an increase in employment growth of about 66%. Furthermore, subsidized start-ups show a 2.8 times higher patent output. These estimates provide evidence for the additionality of R&D subsidies within the first three business years. Moreover, our analysis points to the special group of academic spin-offs which excels in the novelty of business ideas and patent activity. For some of these high-tech start-ups, no non-subsidized counterparts can be found. This might be attributed to the policy focus on academic spin-offs, which has led to a successful targeting of R&D support schemes.
    Keywords: R&D subsidies, start-ups, policy evaluation
    JEL: O38 L26 H50 C14
    Date: 2009–04–14
  19. By: Aune, Finn Roar; Mohn, Klaus (University of Stavanger); Osmundsen, Petter (University of Stavanger); Rosendahl, Knut Einar
    Abstract: ,
    Keywords: Oil Market; Investment behaviour; market power; collusion; equilibrium model
    JEL: G31 L13 Q41
    Date: 2009–10–01
  20. By: Christian A. Ruzzier (Harvard Business School)
    Abstract: A point repeatedly stressed by transaction cost economics is that the more specific the asset, the more likely is vertical integration to be optimal. In spite of the profusion of empirical papers supporting this prediction, recent surveys and casual observation suggest that higher levels of asset specificity need not always lead to vertical integration. The purpose of this paper is to uncover some of the factors driving firms to (sometimes) choose to remain separated, rather than integrate, in the presence of high specificity. Its main economic message is that in a world where outside options matter and investments are multidimensional, high levels of asset specificity can foster nonintegration: a low level of specificity provides the most misdirected incentives when transacting in a market (because the outside option of external trade becomes so tempting), thus making a stronger case for nonintegration when specificity is high.
    Keywords: relational contracts, asset specificity, property rights, vertical integration, outsourcing
    JEL: L14 D23 L24
    Date: 2009–04

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