2010-10-02 papers

on Technology and Industrial Dynamics

Issue of 2010–10–02
two papers chosen by
Fulvio Castellacci, Universitetet i Oslo

Innovation and Institutional Ownership By Philippe Aghion; John Van Reenen; Luigi Zingales
Exclusivity and Exclusion on Platform Markets By Subhasish M. Chowdhury; Steven Martin

By:	Philippe Aghion (Harvard University and CEPR); John Van Reenen (London School of Economics (LSE), Centre for Economic Performance, NBER and CEPR); Luigi Zingales (University of Chicago, NBER and CEPR)
Abstract:	We find that institutional ownership in publicly traded companies is associated with more innovation (measured by cite-weighted patents). To explore the mechanism through which this link arises, we build a model that nests the lazy-manager hypothesis with career-concerns, where institutional owners increase managerial incentives to innovate by reducing the career risk of risky projects. The data supports the career concerns model. First, whereas the lazy manager hypothesis predicts a substitution effect between institutional ownership and product market competition (and managerial entrenchment generally), the career-concern model allows for complementarity. Empirically, we reject substitution effects. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes and disaggregating by type of owner we find that the effect of institutions on innovation does not appear to be due to endogenous selection.
Keywords:	Career Concerns, Innovation, Institutional Ownership, Productivity and R&D
JEL:	G20 G32 O31 O32 O33
Date:	2010–07
URL:	https://d.repec.org/n?u=RePEc:fem:femwpa:2010.99

Exclusivity and Exclusion on Platform Markets

By:	Subhasish M. Chowdhury (School of Economics, University of East Anglia); Steven Martin (Purdue University)
Abstract:	We examine conditions under which a platform firm can exclude rivals by bundling a product that some on one side of the market regard as essential with its platform, and pursue implications for market performance. We show that the impact of an exclusive dealing contract between the upstream firm and one of the downstream firms on market performance depends on the strength of consumer preferences for the products of the two downstream firms and the relative size of the market segment for which the complementary consumption good is essential. In some cases this may reduce the net social welfare.
Keywords:	exclusion, essential components, exclusive contract, platform market.
JEL:	L12 L13 L22 L42
Date:	2010–09–21
URL:	https://d.repec.org/n?u=RePEc:uea:aepppr:2010_16

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