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on Microeconomics |
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Issue of 2007‒09‒24
eleven papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Nisvan Erkal:Daniel Piccinin |
| Abstract: | In the last few decades, the effects of cooperative R&D arrangements on innovation and welfare have played an important role in policy making. The goal of this paper is to analyze the effects of cooperative R&D arrangements in a model with a stochastic R&D process and output spillovers. Our main innovation is to allow for free entry in both the R&D race and the product market. To determine the desirability of cooperation in R&D environments, we compare three different ways of organizing R&D activities: R&D competition, R&D cartels, and RJV cartels. In contrast with the literature, we assume that cooperative R&D arrangements do not have to include all of the firms in the industry. We show that sharing of research outcomes is a necessary condition for the profitability of cooperative R&D arrangements with free entry. The profitability of RJV cartels depends on their size. The impact of cooperative R&D arrangements on the aggregate level of innovation depends on whether there are participants in the R&D race who are a part of the cooperative R&D arrangement. If some outsiders choose to participate in the R&D race, the aggregate rate of innovation remains unaffected by the formation of a cooperative R&D arrangement. Otherwise, it increases. R&D cartels may be welfare-improving in cases when they cause the aggregate rate of innovation to increase. In such cases, it may be desirable to subsidize them. Since sharing of R&D outcomes affects the equilibrium number of firms in the product market after the R&D race, the consumer welfare effects of RJV cartels are sensitive to the specification of consumer preferences. Subsidies may be desirable in cases of larger RJVs since they are the ones which are less likely to be profitable. |
| Keywords: | Cooperative R&D; Research joint ventures; Free entry; Uncertain R&D; Technology spillovers. |
| JEL: | L1 L4 O3 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:999&r=mic |
| By: | Rossella Argenziano |
| Abstract: | We consider a model of price competition in a duopoly with product differentiation and network effects. The value of a good for a consumer is the sum of a common and an idiosyncratic component. The first captures the vertical dimension of quality, the second captures horizontal differentiation. Each consumer privately observes his own value for each good, but cannot separate the common and the idiosyncratic component. Therefore, he has incomplete information about the value of the goods for the other consumers. After firms announce prices, consumers choose simultaneously which network to join, facing a coordination problem. In the efficient allocation, both networks are active and the firm with the highest expected quality has the largest market share. To characterize the equilibrium allocation, we derive necessary and sufficient conditions for uniqueness of the equilibrium of the coordination game played by consumers for given prices. The equilibrium allocation differs from the efficient one for two reasons. First, the equilibrium allocation of consumers to the networks is too balanced, since consumers fail to internalize network externalities. Second, if access to the networks is priced by strategic firms, then the product with the highest expected quality is also the most expensive. This further reduces the asymmetry between market shares and therefore social welfare. |
| Date: | 2007–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:638&r=mic |
| By: | Tina Kao & Flavio Menezes (School of Economics, The University of Queensland) |
| Abstract: | We follow the duopoly framework with differentiated products as in Singh and Vives (1984) and Zanchettin (2006) and examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range. Furthermore, this parameter range widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:350&r=mic |
| By: | Omar Licandro; Antonio Navas-Ruiz |
| Abstract: | The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a twocountry endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms`market power. |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we076536&r=mic |
| By: | Eric Rasmusen (Indiana University Bloomington); Young-Ro Yoon (Indiana University Bloomington) |
| Abstract: | Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served. |
| Keywords: | Market Entry, First- and Second Mover Advantage, Payoff Externalities, Informational Externalities, Endogenous Timing |
| JEL: | D81 D82 L13 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2007017&r=mic |
| By: | Thomas Wein (Institute of Economics, Leuphana University of Lüneburg); Heike Wetzel (Institute of Economics, Leuphana University of Lüneburg) |
| Abstract: | Reviewing the development of network access charges in the German electricity market since 2002 reveals significant variation. While some firms continually increased or decreased their access charges, a variety of firms exhibited discontinuousn behavior with price changes in both directions. From an economic viewpoint this price setting turbulence is astonishing because grid operators are non-contestable natural monopolists, which in this time period were regulated by Negotiated Third Party Access (NTPA). Depending on the eectiveness or ineectiveness of NTPA,expected behavior would be either regulated average cost prices or monopoly prices, but not the observed turbulence. Although in 2005 NTPA scheme was replaced by a Regulated Third Party Access (RTPA) scheme with a regulator, an analysis of the factors influencing the price setting behavior within this period oers valuable information for the new regulator and the still discussed new incentive regulation, which is expected to start in 2009. Using multivariate estimations based on firm data covering the years 2000-2005, we test the hypotheses that asymmetric influence of regulatory threat, dierent cost and price calculation knowledge, strategic use of structural features and the obligation to publish specific access charges have influenced the electricity network access charges in Germany. |
| Keywords: | Keywords: deregulation, natural monopoly, power industry |
| JEL: | D42 L43 L94 |
| Date: | 2007–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:62&r=mic |
| By: | Elena Cefis; Anna Sabidussi; Hans Schenk |
| Abstract: | We investigate the effects of M&A on innovation in the specific context of potential or realized market dominance. Authorities are challenged by balancing both detrimental and beneficial effects of mergers on innovation, especially when a merger threatens to result in market dominance, while firms would wish to uncover all the potential benefits arising from M&A. The effects of M&As on innovation have been tested on a panel dataset, constructed from the Dutch Community Innovation Survey and the Dutch Business Register, including around 1000 manufacturing companies. We have adopted a comprehensive approach, taking into consideration three dimensions of innovation: innovation inputs, innovation outputs and efficiency. The results show that M&As performed in the previous 3-5 years have a positive and significant effect on innovation except R&D expenses and innovation efficiencies. The results also suggest that technological regimes are critical to understanding the patterns of innovation. |
| Keywords: | Mergers and Acquisitions, Innovation, Market Dominance |
| JEL: | C14 D21 L11 L25 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0720&r=mic |
| By: | Alain Delacroix; Shouyong Shi |
| Abstract: | In this paper, we introduce private information into a market with search frictions and evaluate the relative efficiency of two pricing mechanisms, price posting and bargaining. Each seller chooses investment that determines the quality of the good. This quality is the seller's private information before matching and it will be observed in a match. Sellers enter a search market competitively and can choose either to post prices or to bargain. In this environment, a pricing mechanism affects efficiency through the choice of quality and the number of trades. Bargaining induces the efficient choice of quality but an inefficient number of trades because the division of the match surplus is generically inefficient. By directing buyers' search, posted prices internalize search externalities and induce the constrained efficient outcome in the case of public information. However, when the quality is private information, this role of posted prices in directing search can conflict with their role in signaling quality. Focusing on this conflict, we find that bargaining could yield higher efficiency than price posting. We characterize the parameter regions in which each of the two mechanisms dominates in efficiency. |
| Keywords: | Directed search; Signaling; Bargaining; Efficiency |
| JEL: | D8 C78 E24 |
| Date: | 2007–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-298&r=mic |
| By: | José Féres; Arnaud Reynaud; Alban Thomas |
| Abstract: | This paper examines the factors influencing water reuse in manufacturing firms and analyzes whether the structure of intake water demand differs between firms that adopt water reuse practices and those which do not. To this purpose, we estimate a two-stage econometric model based on a sample of 447 industrial facilities located in the Paraíba do Sul river basin. The first stage applies a probit model for the water reuse decision and the second stage employs an endogenous switching regression to estimate the intake water demand equations. Results suggest that water charges may act as an effective mechanism in inducing firms to undertake water reuse investments and reducing intake water demand. Estimates of the water demand price elasticities indicate that plants reusing water are more sensitive to water price increases than plants without access to reuse technologies. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipe:ipetds:1257&r=mic |
| By: | Elena Cefis; Mark Grondsma; Anna Sabidussi; Hans Schenk |
| Abstract: | Changes in the world’s economies and discussions in the literature about the growing importance of innovation to firms have given rise to a demand for expanding the analysis of merger policy. The present study focuses on the different criteria used to assess the impact of M&A activities on innovation. The analysis is both theoretical and empirical. From a theoretical perspective, two main approaches are discussed: the efficiency defence approach, adopted in Europe, and the innovation markets doctrine as developed in the United States. The present paper contributes to the literature by suggesting that an integration of the two approaches would significantly improve M&A assessment. On the empirical side, two cases that have been scrutinised by both the European Commission and the U.S. Federal Trade Commission are discussed. The results show the relevance of the different approaches used when dealing with innovation in the assessment of mergers. |
| Keywords: | Mergers and Acquisitions, Innovation, Efficiency Defence |
| JEL: | C14 D21 L11 L25 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0721&r=mic |
| By: | Michele Moretto (Università di Padova); Gianpaolo Rossini (Università di Bologna) |
| Abstract: | From 1997 to 2001 we observe a faster growth in the number of Nonemployer businesses (mostly Partnerships) vis-à-vis Firms in the USA, a country with the mildest asymmetries between the two types of enterprise with respect to taxation, administrative entry barriers and other institutional aspects. The different speed of net entry may be due to the internal organisation of the two types of enterprise and its relation to some market features. In a continuous time stochastic environment, with sunk costs, we model entry as a growth option. Partnerships and Firms display speci c entry patterns in terms of output price and size since they react in diverse fashions to market uncertainty. In most cases, the Partnership is less risky and better suited to enter under conditions of high volatility, as during the years between 1997 and 2001. |
| Keywords: | Entry Strategies, Uncertainty, Partnership, Firm |
| JEL: | L21 L3 J54 G13 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0049&r=mic |