nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2007‒10‒06
three papers chosen by
Rui Baptista
Technical University of Lisbon

  1. The Unilateral Incentives for Technology Transfers: Predation by Proxy By Anthony Creane; Hideo Konishi
  2. Measuring the Returns to R&D: The Depreciation Problem By Bronwyn H. Hall
  3. National Systems of Innovations and the Role of Demand. A Cross Country Comparison By Garcia, Abraham

  1. By: Anthony Creane (Michigan State University); Hideo Konishi (Boston College)
    Abstract: In 1984 GM and Toyota began the joint production of automobiles to much controversy over its anti-competitive effects. The argument for the joint production was the considerable efficiency gains GM would obtain. Since then, the anti-trust controversy has died, but a question remains: why would the most efficient manufacturer (Toyota) transfer to its largest rival the knowledge to transform itself into a very efficient rival? We examine when such transfers could be unilaterally profitable, finding that it can serve as a credible way to make the market more competitive, forcing high cost firms to exit (or preventing future entry). This is not without a cost to Toyota since such a transfer also makes the remaining rivals more efficient. Despite this, we find a sufficient (but not necessary) condition for it to be profitable to predate "by proxy": the market satisfies an entry equilibrium condition. Further, we find that it is then optimal to predate on every firm that is vulnerable and so a market with many firms can become a duopoly. Profitable predation implies higher prices, to the detriment of consumers. Yet the improved production efficiency outweighs this loss, resulting enhanced social welfare. In contrast, profitable non-predatory joint production (or technology transfers) may reduce welfare. Paradoxically, the potential for predation could encourage entry ex ante.
    Keywords: Predation, Technology Transfers
    JEL: D4 L1 L41
    Date: 2007–09–29
  2. By: Bronwyn H. Hall
    Abstract: Measuring the private returns to R&D requires knowledge of its private depreciation or obsolescence rate, which is inherently variable and responds to competitive pressure. Nevertheless, most of the previous literature has used a constant depreciation rate to construct R&D capital stocks and measure the returns to R&D, a rate usually equal to 15 per cent. In this paper I review the implications of this assumption for the measurement of returns using two different methodologies: one based on the production function and another that uses firm market value to infer returns. Under the assumption that firms choose their R&D investment optimally, that is, marginal expected benefit equals marginal cost, I show that both estimates of returns can be inverted to derive an implied depreciation rate for R&D capital. I then test these ideas on a large unbalanced panel of U.S. manufacturing firms for the years 1974 to 2003. The two methods do not agree, in that the production function approach suggests depreciation rates near zero (or even appreciation) whereas the market value approach implies depreciation rates ranging from 20 to 40 per cent, depending on the period. The concluding section discusses the possible reasons for this finding.
    JEL: D24 G12 L20 O30
    Date: 2007–10
  3. By: Garcia, Abraham (UNU-MERIT)
    Abstract: This article focuses on the role of demand in the National System of Innovations: why it is so important, and how does it affect the dynamics of the system and the flow of inventions and innovations. To study the evolutions and the dynamics of the different systems a series of composite indicators will be build up. In the paper it will be argued that the system of innovation can be defined by four different dimensions: Social and Human Capital, Knowledge Creation, Innovation capacity of the Supply and Innovation from the Demand. The evolution of these dimensions is studied over a period of fifteen years and compared across fourteen European countries. This structure allows to study different dynamics, and evolution over time of different systems. The study highlights the weak links of the system, comparing each national system with the performance of the rest of the states members. The identification of the weakness and the evolution of the weakness over the time gives interesting policy conclusions. The aim of the paper is also to contribute to the theory of composite indicators by offering a new approach to select, after carrying out a sensitivity analysis, the best indicator.
    Keywords: National System of Innovations, Composite Indicators, Benchmarking, Demand
    JEL: O30 O38 O52 P46
    Date: 2007

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