Innovation,trade and multi‐product firms

This paper contributes to the literature on the relationship between innovation and exports by developing a model that emphasizes the role of product innovation in explaining heterogeneity in export behaviour both across and within firms. The dynamic model assumes that firms invest to maintain and increase the portfolio of products they sell: innovation is a stochastic process whereby the probability to capture new business opportunities is a function of the number of goods already sold. Crucially, the model assumes two independent mechanisms to drive the extensive and the intensive margins of a firm's export. The resulting lack of (built‐in) correlation between the two margins is well reflected in the data and represents the main contribution of our theoretical framework. The model is consistent with several other empirical regularities that characterize multi‐product firms, such as the heavy tail in the distribution of the number of products exported by each firm, the strict hierarchy in the sales of products across markets, the substantial degree of product churning and the highly skewed distributions of export sales.     

Advertising Subsidy and International Oligopolistic Competition

This paper examines the strategic role of advertising subsidies in a third‐country trade model in which two firms located in different countries export their products to a third country. First a basic model of advertising in oligopolistic industries is developed in which firms decide how much to invest in either predatory or cooperative advertising and then engage in product market competition either as Cournot competitors or as Bertrand competitors. It is shown that firms invest in only one form of advertising; which form they invest in depends on the relative effectiveness of the two types of advertising, the degree of product differentiation, and the form of product market competition. The paper then studies strategic industrial policy and shows that an advertising subsidy is the optimal strategic policy irrespective of the form of product market competition and the form of advertising in which firms invest.     

Do standards improve the quality of traded products?

We examine whether standards raise the quality of traded products. Matching a panel of French firm–product–destination export data with a data set on sanitary and phytosanitary measures and technical barriers to trade, we find that such quality standards enforced on products by destination countries: (i) favour the export probability of high-quality firms provided that their productivity is high enough, (ii) raise the export sales of high-productivity, high-quality firms at the expense of low-productivity and low-quality firms and (iii) increase the quality supplied by firms if their productivity is high enough. We then develop a simple new trade model under uncertainty about product quality in which heterogeneous firms can strategically invest in quality signalling to rationalize these empirical results on quality and selection effects.     

Limited liability effect on product safety

This paper analyses how limited liability and capital size affect a firm's investment for product safety. Firms become bankrupt when their products cause accidents and they cannot compensate for the damages incurred. Relatively small firms obtain greater expected profit because they do not need to pay full damage when their products cause accidents and they become bankrupt. Thus, smaller firms may have greater incentives than larger firms to participate in risky projects. But relatively small firms may invest more for product safety because increasing their investments is not costly in case of bankruptcy.     

Product differentiation, process R&D, and the nature of market competition

We investigate the relationship between process and product R&D and compare the incentives for both types of R&D under different modes of market competition (Bertrand versus Cournot). It is shown that: (i) process R&D investments increase with the degree of product differentiation and firms invest more in product R&D when they can do process R&D than when they cannot; (ii) Bertrand firms have a stronger incentive for product R&D whereas Cournot firms invest more in process R&D; and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.     

Micro-responses to shocks: pricing,promotion, and entry*

We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia, their market share collapsed from 16.5 percent in January to below 1 percent in March, and never fully recovered; by 2009, it was 6.3 percent. By analyzing micro-level (scanner) price and sales data, we find the following. (i) Danish firms lowered prices but kept the product mix the same. (ii) Non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles. (iii) Non-Danish firms chose to introduce products that were similar to the Danish products in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.     

New implications of Lazear's skill-weights approach

A new approach to the theory of specific human capital, proposed by Lazear (2009), assumes that all skills are general but that firms use them with different weights attached. In Lazear's analysis, the decision to invest in the worker's acquisition of various skills is assumed to maximize the expected net joint surplus of the worker and the employer. This paper explores new implications of the skill-weights approach when the worker and the firm independently and non-cooperatively invest in the worker's skills.     

Competing incremental and breakthrough innovation in a model of product evolution

This paper develops a growth model in which product cycles arise endogenously from investment in incremental and breakthrough innovations. Incumbent firms invest in incremental technology improvements with the aim of reducing production costs. Market entrants develop breakthrough product designs in order to capture the market from vintage product lines. The competing objectives of the two types of innovation generate product cycles within an environment of creative destruction, as new products displace old and are then manufactured using production technologies that are continuously refined. Investigating the relationship between innovation incentives and the average length of product cycles, we characterized three stable patterns of product evolution: incremental innovation alone, breakthrough innovation alone, and product cycles with both types of innovation. Numerical examples suggest that when the market exhibits stable product cycles, subsidies to either type of innovation raise the rate of economic growth and improve welfare.     

Knowledge Intensive, Technical and Other Services: Patterns of Competitiveness and Innovation Compared

Drawing on empirical evidence from a wide-scale survey, this paper examines patterns of innovation and sources of competitiveness amongst German service firms. The purpose is to investigate how these patterns differ across services, and in particular how knowledge intensive and technical service firms differ from services more generally. The analysis finds a high degree of customization in the output of service firms, especially amongst the knowledge intensive and technical service firms, the innovation activities of which are also relatively more oriented to product innovation. Knowledge intensive and technical service firms also invest more heavily in information communication technologies, whilst other services invest heavily in non-ICTs. Thus significant diversity is found between the groups of firms examined, but much diversity also exists within the groups. A serious challenge for research on services is to improve our understanding of this diversity.     

Spillovers,product innovation and R&D cooperation: a theoretical model

ABSTRACT

We analyze the impact of post-innovation knowledge spillovers on firms’ decisions to invest and cooperate in R&D, forming a research joint venture (RJV). We study the case of two potential investors involved in a non-tournament stochastic competition for developing a new but imitable product. We propose a theoretical model where cooperation may emerge as a subgame perfect Nash equilibrium of a three-stage game. In the first stage, firms decide whether to cooperate; in the second, they decide whether to invest; and in the third, they compete. We show that firms cooperate in R&D when the spillovers are high enough and the fixed costs associated with R&D activities are low enough; however, our analysis suggests that forming an RJV may not always be socially optimal, and subsidizing R&D cooperation may not be efficient. We propose an optimal scheme of subsidies, which should be designed according to the intensity of the spillovers, the level of the R&D costs, and the probability of innovation success. Finally, we show that in the case of mergers the private incentive to invest is maximized, and firms may not need public subsidies to cooperate. When subsidies are costly, not hindering mergers may be the second-best solution.     

Standards Migration and Peripheral Competition

The impact of competition from peripheral firms on the standards migration efforts by integrated systems firms with de facto standards control is investigated. When systems firms try to migrate their customers to a new standard, they can lose some control over their installed base because they are constrained in their product offerings. Peripherals firms do not face such constraints. Their product offerings allow the emergence of hybrid systems which systems firms are unwilling to match. Improved peripherals from independent firms make these hybrid systems possible. Such hybrid systems lengthen the economic life of the products that make up the existing standard. Historical and empirical evidence from the mainframe computer industry in the 1960s and 1970s illustrates the competition from peripheral firms and their impact on IBM's standards migration efforts. IBM pursued the establishment of a new de facto standard, while independent disk drive manufacturers supplied peripherals that enabled hybrid systems. For the computer mainframe industry, it was shown that those hybrid systems increased the economic life of IBM's older computers, although IBM was able to migrate its customers to the new standard in this case.     

Empirical Analysis of the Innovation Phenomena in the Sports Equipment Industry

This article presents the results of a survey conducted in 108 firms in the French sports industry. The inquiry was based on three main themes: research & development, innovation and adoption of new materials. The study has shown a link between the product's life cycle and the structure of the industry. In fact the various levels of achievements reached by sports products have generated various structures among the sectors already mentioned. Slightly declining sectors, like skiing or yachting, are rather concentrated and tend to focus on process innovations. Fast expanding sectors, like snowboard, mountain bike and cycling, are rather atomized and innovate much more on new product and materials.     

Knowledge Intensive,Technical and Other Services: Patterns of Competitiveness and Innovation Compared

Drawing on empirical evidence from a wide-scale survey, this paper examines patterns of innovation and sources of competitiveness amongst German service firms. The purpose is to investigate how these patterns differ across services, and in particular how knowledge intensive and technical service firms differ from services more generally. The analysis finds a high degree of customization in the output of service firms, especially amongst the knowledge intensive and technical service firms, the innovation activities of which are also relatively more oriented to product innovation. Knowledge intensive and technical service firms also invest more heavily in information communication technologies, whilst other services invest heavily in non-ICTs. Thus significant diversity is found between the groups of firms examined, but much diversity also exists within the groups. A serious challenge for research on services is to improve our understanding of this diversity.     

Standards Migration and Peripheral Competition

The impact of competition from peripheral firms on the standards migration efforts by integrated systems firms with de facto standards control is investigated. When systems firms try to migrate their customers to a new standard, they can lose some control over their installed base because they are constrained in their product offerings. Peripherals firms do not face such constraints. Their product offerings allow the emergence of hybrid systems which systems firms are unwilling to match. Improved peripherals from independent firms make these hybrid systems possible. Such hybrid systems lengthen the economic life of the products that make up the existing standard. Historical and empirical evidence from the mainframe computer industry in the 1960s and 1970s illustrates the competition from peripheral firms and their impact on IBM's standards migration efforts. IBM pursued the establishment of a new de facto standard, while independent disk drive manufacturers supplied peripherals that enabled hybrid systems. For the computer mainframe industry, it was shown that those hybrid systems increased the economic life of IBM's older computers, although IBM was able to migrate its customers to the new standard in this case.     

The effect of firm maturity on corporate social responsibility (CSR): do older firms invest more in CSR?

Motivated by the literature on corporate life cycles, we explore the effect of firm maturity on corporate social responsibility (CSR). Our results based on over 26 000 observations across 21 years reveal that more mature firms invest significantly more in CSR. Furthermore, we find that the effect of firm maturity is not uniform across different categories of CSR. As firms get older, they become much more responsible in terms of diversity and environmental awareness, whereas the effect of firm ageing is much weaker in terms of human rights and product safety. Our study is the first to link corporate life cycles to CSR.     

Recycling and extending product-life: an evolutionary modelling

This paper presents a model-based analysis of firms’ economic incentives to extend product life and market recyclable products. We address this problem by developing an evolutionary simulation model to describe the behavior of business firms as interacting with consumers and recyclers. Market structure, business firms’ R&D strategies and consumers’ preferences are found to have an important influence here. The simulation results show that improvement in recycling is necessary but not sufficient to solve the issue of increase in waste. Recycling will need to be backed up with an extension in product-life to face such an unwanted increase. Adopting such a strategy could be positive for firms and for the environment because it could lead to high economic performance, both in terms of profits and market share, and to high environmental performance, both in terms of product recyclability and product lifetime. Our results suggest introducing regulation policies aimed at encouraging firms to invest in developing green products, i.e. those which are easily recyclable and which have a long lifetime, and getting consumers to buy them. It would also seem crucial to lend support to innovation outlay for such firms and to favor their seeking to improve product performance.

Empirical Analysis of the Innovation Phenomena in the Sports Equipment Industry

This article presents the results of a survey conducted in 108 firms in the French sports industry. The inquiry was based on three main themes: research & development, innovation and adoption of new materials. The study has shown a link between the product's life cycle and the structure of the industry. In fact the various levels of achievements reached by sports products have generated various structures among the sectors already mentioned. Slightly declining sectors, like skiing or yachting, are rather concentrated and tend to focus on process innovations. Fast expanding sectors, like snowboard, mountain bike and cycling, are rather atomized and innovate much more on new product and materials.     

循环经济模式下的企业生产组织研究

提出了在循环经济规则下,企业生产责任从产品生产,产品销售和售后服务向着产品的再使用,再制造,回收资源化和最终处置延伸中的产业组织的新结构与新机制。分析评价了产品寿命周期每一事件对环境产生的影响和影响程度。为实现产品寿命周期的环境负面影响最小化,认为企业必须实施清洁生产,在技术、设备和工艺流程上进行创新。为保证企业清洁生产的有效实施,提出企业必须建立ISO14001环境管理体系,在产品生产的组织和程序上落实和执行ISO14001标准,使ISO14001环境管理体系在企业产品寿命周期上为实施清洁生产,节能降耗和保护环境保驾护航。     

The exceptional performance of Chinese outward direct investment firms

This paper finds that Chinese manufacturing firms that engage in outward foreign direct investment (ODI) have better economic performance than non-ODI manufacturing firms. Overall, ODI firms are more productive and have higher profitability than non-ODI firms. The sector analysis shows that the exceptional performance is significant for labor-intensive industries. Finally, the ODI activity can raise the productivity of other firms in an industry. The larger the ODI within an industry, the higher the productivity of all firms in that industry. The paper suggests that domestic firms set up their firm’s global strategy and reallocate the firm’s resources according to the changing investment environment, taking advantages of profit opportunities outside of domestic markets and invest abroad to get new markets and new technology.     

Foreign Direct Investment and the Incentives to Innovate and Imitate*

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.