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on Microeconomics |
| By: | Alejandro Saporiti (University of Manchester); German Coloma (Universidad del CEMA) |
| Abstract: | This paper provides necessary and sufficient conditions for the existence of a pure strategy Bertrand equilibrium in a model of price competition with fixed costs. It unveils an interesting and unexplored relationship between Bertrand competition and natural monopoly. That relationship points out that the non-subadditivity of the cost function at the output level corresponding to the oligopoly break-even price, denoted by D(pL (n)), is sufficient to guarantee that the market supports a (not necessarily symmetric) Bertrand equilibrium in pure strategies with two or more firms supplying at least D(pL (n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(p(n)). |
| Keywords: | Bertrand competition, cost subadditivity, fixed costs, natural monopoly. |
| JEL: | D43 L13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:549&r=mic |
| By: | Laura Magazzini; Fabio Pammolli; Massimo Riccaboni; Maria Alessandra Rossi |
| Abstract: | The prominent role played by patents within the pharmaceutical domain is unquestionable. In this paper we take an unusual perspective and focus on a relatively neglected implication of patents: the effect of patent-induced information disclosure (of both successes and failures) on the dynamics of R&D and market competition. The study builds upon the combination of two large datasets, linking the information about patents to firm level data on R&D projects and their outcome. Two case studies in the fields of anti-inflammatory compounds and cancer research complement our analysis. We show the important role played by patent disclosure in shaping firms technological trajectories through the possibility of reciprocal monitoring in a context of parallel research efforts, and suggest the importance of enhancing the diffusion of information concerning failures, not only to avoid wasteful duplication of innovative efforts, but also as a tool for the identification of promising research trajectories. This paper is the result of the "R&D competition" research project carried out jointly with Adrian Towse and Martina Garau of the Office of Health Economics, London, UK. A preliminary draft of the paper has been presented to the DRUID Summer Conference 2006 (Copenhagen), and to the 11th ISS Conference (Sophia-Antipolis). |
| Keywords: | patent disclosure; innovation; r&d competition |
| JEL: | D23 D83 O34 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:trt:disawp:0902&r=mic |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems. |
| Keywords: | Acquisitions; Entrepreneurship; Innovation; Venture Capital |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0783&r=mic |
| By: | Tåg, Joacim (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Media firms sometimes allow consumers to pay to remove advertisements from an advertisement-based product. We formally examine an ad-based monopolist's incentives to introduce this option. When deciding whether to introduce the option to pay, the monopolist compares the potential direct revenues from consumers with lost advertising revenues from not intermediating those consumers to advertisers. If the option is introduced, the media firm increases advertising quantity to make the option to pay more attractive. This hurts consumers, but benefits the media firm and advertisers. Total welfare may increase or decrease. Perhaps surprisingly, more annoying advertisements may lead to an increase in advertising quantity. |
| Keywords: | Advertising; Damaged goods; Media markets; Price discrimination; Two-sided markets; Vertical differentiation |
| JEL: | D42 L15 L59 M37 |
| Date: | 2009–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0789&r=mic |
| By: | Aditi Sengupta (SMU) |
| Abstract: | We examine the effect of more stringent environmental regulation on the dynamic structure of a deterministic competitive industry with endogenous entry and exit where firms invest in reduction of their future compliance cost. The level of regulation is exogenously fixed and constant over time. The compliance cost of a firm at each point of time depends on its current output, its accumulated past investment and the level of regulation. We outline sufficient conditions under which industries with more stringent regulation are associated with higher investment in compliance cost reduction and higher shake-out of firms over time; the opposite may be true under certain circumstances. Our analysis indicates that the effect of a change in regulation on market structure may be lagged over time. |
| Keywords: | Environmental regulation; Industry dynamics; Investment; Shake-out. |
| JEL: | L51 L52 O33 Q52 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:0903&r=mic |
| By: | Andrea Attar; Thomas Mariotti; Francois Salanie |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:09.13.289&r=mic |
| By: | Baum, Joel (Rotman School of Management, University of Toronto); Cowan, Robin (UNU-MERIT, Maastricht University); Jonard, Nicolas (Universite du Luxembourg) |
| Abstract: | Empirical research on strategic alliances has focused on the idea that alliance partners are selected on the basis of social capital considerations. In this paper we emphasize instead the role of complementary knowledge stocks (broadly defined) in partner selection, arguing not only that knowledge complementarity should not be overlooked, but that is may be the true causal force behind alliance formation. To marshal evidence on this point, we design a simple model of partner selection in which firms ally for the purpose if learning and innovating, and in doing so create an industry network. We abstract completely from network-based structural and strategic motives for partner selection and focus instead on the idea that firms' knowledge bases must "fit" in order for joint learning and innovation to be possible, and thus for an alliance to be feasible. The striking result is what while containing no social capital considerations, the simple model replicates the firm conduct, network structure, and contingent effects of network position on performance observed and discussed in the empirical literature. |
| Keywords: | Network formation and dynamics, Innovation, Knowledge, Alliances |
| JEL: | D85 D24 L14 L24 O33 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2009022&r=mic |
| By: | OECD |
| Abstract: | This paper summarizes, structures, and provides some context for discussions of the round table mentioned in the title. The first part of the paper focuses on sources of market power for airports and on policy responses. When an airport is congested and competition with other airports is limited, regulation may be justified, and the dual till approach likely works best. In other cases, however, policy should establish conditions for competition to emerge as much as possible, instead of attempting to design a general regulatory framework. The second part of the paper discusses elements of climate change policy in aviation. Including aviation in emission trading schemes is a sensible idea, but should not be expected to produce major cuts in CO2-emissions from aviation; containing its growth possibly is a more realistic, yet ambitious, objective. High-speed rail is justified in a number of situations, but is not a general alternative for air travel and certainly not a second-best way to reduce greenhouse gas emissions from aviation. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:itfaaa:2009/7-en&r=mic |
| By: | Corvoisier, Sandrine; Gropp, Reint Eberhard |
| Abstract: | We estimate the effect of internet penetration on retail bank margins in the euro area. Based on an adapted Baumol [1982] type contestability model, we argue that the internet has reduced sunk costs and therefore increased contestability in retail banking. We test this conjecture by estimating the model using semi-aggregated data for a panel of euro area countries. We utilise time series and cross-sectional variation in internet penetration. We find support for an increase in contestability in deposit markets, and no effect for loan markets. The paper suggests that for time and savings deposits, the presence of brick and mortar bank branches may no longer be of first order importance for the assessment of the competitive structure of the market. |
| Keywords: | Banking structure, Contestability, Internet |
| JEL: | D43 E43 G21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7532&r=mic |