Sequencing R&D decisions in a two-period duopoly with spillovers

Summary. We compare simultaneous versus sequential moves in R&;D decisions within an asymmetric R&;D/Cournot model with linear demand (for differentiated products), general R&;D costs, and spillovers. Simultaneous play and sequential play (with and without a specified leader) can emerge as appropriate formulations, depending on the ratios of spillover rate over demand cross-slope, but not on R&;D efficiency. When at least one ratio is above 1/2, a sequential solution mitigates competition and leads to higher profits for each firm, and to higher social welfare. When uniquely specified, the stronger firm emerges as the R&;D first-mover.     

Media Plurality: Private versus Mixed Duopolies

In this paper, we analyze the level of media plurality in a market with two private news firms (private duopoly) and in a market with a private news firm and a public news firm (mixed duopoly). In the private duopoly news firms maximize profits. In the mixed duopoly, the private news firm maximizes profits, while the public news firm maximizes social welfare. We show that, in spite of the public news firm maximizing social welfare, neither media plurality nor social welfare needs to be higher under the mixed duopoly compared with the private duopoly. This will depend on the relation between the costs of adapting news to readers' political preferences, the intensity of the readers' political preferences, and the size of the advertising market.     

WELFARE ANALYSIS OF PRIVATIZATION IN A MIXED MARKET WITH BARGAINING

The author analyzes the welfare effects of privatization in a mixed duopoly model in which the wage rate for the privatized firm is determined by Nash bargaining beforehand. The evaluations are based on three-stage privatization frameworks respectively under two regimes: Cournot competition and a public firm acting as a Stackelberg leader. The author finds that the optimal degrees of privatization from the viewpoint of social welfare may be different for various types of competition. The article also shows that even optimal privatization set by a welfare-maximization government may not guarantee welfare improvement, owing to the interference of wage bargaining. (JEL D60, D78, L32, L33 )     

DEFECTING FROM R&D COOPERATION

This paper introduces defection into the strategic R&D model. In defecting, a firm cheats by choosing its R&D expenditures to maximise its own profits, instead of maximising the joint profits of the cooperating firms. Two cooperative environments are considered: R&D cartelisation, where firms coordinate R&D activities; and RJV cartelisation, where firms coordinate R&D activities and share information. Under R&D cartelisation, defection entails an increase (decrease) in R&D and effective spillovers for low (high) spillovers; whereas under RJV cartelisation, defection always entails a decrease in R&D and effective spillovers. Under R&D cartelisation, consumer surplus and total welfare increase (decrease) with defection when spillovers are low (high). Whereas consumer surplus and welfare always decrease with defection under RJV cartelisation. Under R&D cartelisation, the incentives for defection first decrease then increase with spillovers; they also increase with the size of the market, but decline with production costs and R&D costs. Moreover, the incentives for defection are higher under RJV cartelisation. With low spillovers under RJV cartelisation, a firm prefers to be subject to defection by the other firm, to not cooperating at all. Punishment for defection is considered, under the form of abstaining from information sharing.     

On monopoly welfare gains,scale efficiency and the costs of decentralization

Inside the neoclassical framework a monopoly produces an unambiguous loss of social welfare. In this article some dynamic efficiency aspects of monopoly in connection with economies of scale are discussed. Two different cases of the costs of capacity expansion for a branch are compared: (1) the capacity expansion takes place with only one, multiplant, monopoly firm, (2) the capacity expansion takes place in a branch producing the same output but with two or more multiplant firms. It is argued that monopoly welfare gains are likely to arise for a centralized process of capacity expansion compared to a decentralized one.     

Social welfare loss due to second-best pricing: an application to the Portuguese telecommunications

The telecommunications industry is usually characterized by low marginal costs and significant fixed costs which are the conditions for the inefficiency of marginal cost pricing. In such cases theory postulates that optimal pricing is obtained by maximizing welfare subject to a restriction of viability of the firm: the second-best pricing scheme. The possible welfare losses due to second-best pricing varies according to the values of marginal costs, prices and demand elasticities. This paper analyses to what extent the second-best pricing has been achieved in the Portuguese telecommunications firm CTT, over the period 1950#150;1984 as well as the magnitude of the price-cost margins and welfare losses created. We obtained empirical evidence of the presence of economies of scale, a welfare loss estimate of 1% of the telecommunications receipts and a result that price was 40% greater than marginal cost. We concluded that price regulation and public ownership of the firm did not seriously affect social welfare over the sample period (it should be noted that it is the non-digital and fixedwire infrastructure period). Therefore, it is important to study the impact of new digital and non-wire technologies and new services provided in the old regulatory scenery.     

国有企业改制效果的实证研究

本文通过对1998至2003年间全部国有企业和规模以上非国有企业的数据进行分析来研究我国国有企业改制的效果。我们不仅考察了改制对企业经济效益的影响,而且考察了改制对企业社会效益指标的影响。此外,我们还分析了改制影响经济效益的渠道、国有控股和非国有控股的差别、以及改制效果的可持续性。本文的主要发现是:改制后企业经济效益显著提高,并且主要来自于代理成本的降低,表现为管理费用率的下降;改制带来了一定的社会成本,但和国际经验相比程度不是很大;国有控股改制社会效益较好,而非国有控股改制经济效益较好;改制效果在一定期间内持续。     

Welfare effects of competition for FDI between technologically asymmetric countries with varying trade costs

Given the traditional argument that host countries' excessive competition for FDI (foreign direct investment) deteriorates the host countries' welfare, this paper examines the impact of policy competition for FDI on social welfare considering varying trade costs. Based on a model where two technologically asymmetric countries compete for FDI, we determine an equilibrium where a multinational firm relocates to a less efficient country. Moreover, we demonstrate that the policy competition for FDI between less integrated economies might improve social welfare when the multinational firm relocates to a country with a lower technology and a less competitive market. Nonetheless, we show that the traditional argument can be true when the policy competition for FDI between highly integrated economies deteriorates host countries' welfare, as supported by the empirical evidences of moderated competition for FDI within EU member countries.     

Minimum safety standards with asymmetric safety costs

We explore the welfare effect of minimum safety standards, focusing on the case where duopoly firms are asymmetric in that they have different safety effort costs. If duopoly firms are symmetric, they do not provide enough safety to be socially efficient, and so imposing minimum safety standards can resolve this problem. We show, however, that imposing minimum safety standards may reduce the social welfare when there is a large asymmetry in the safety effort costs. In the unregulated equilibrium, the high-cost firm’s safety effort is smaller than that of the low-cost firm, and the high-cost firm is more likely to provide a larger safety effort than is needed to have a socially efficient level with larger asymmetry in the safety effort costs. If safety standards raise the high-cost firm’s safety effort, both firms’ safety efforts may end up further away from the socially efficient level: the low-cost firm reduces its safety effort when the rival’s effort increases because safety efforts are strategic substitutes.     

Why some product innovations are licensed and others are not?

We study in a Stackelberg industry the licensing of a product that embodies an innovation (quality-improving product) whose owner may be the firm that plays as a leader or a follower in setting output in the the product market. We find that the innovation is transferred (and social welfare is reduced) if its owner is the market-leader firm. However, if the innovation is in the hands of the market-follower firm, it is not licensed, even though licensing would be welfare enhancing. Thus, subsidizing R&D with the mandatory licensing of the resulting innovation may be a socially desirable policy.     

Privatization, productive efficiency and social welfare with a foreign competitor

We investigate how decision-making upon cost-reducing R&D investment by a domestic public firm is affected by privatization and entry of a foreign firm. It is shown that entry of a foreign firm lowers productive efficiency of the domestic public firm but improves the domestic social welfare. It is also shown that privatization of the public firm lowers productive efficiency and deteriorates domestic social welfare.     

Equal treatment and socially optimal R&D in duopoly with one‐way spillovers

This paper examines the standard symmetric two‐period R&D model with a deterministic one‐way spillover structure: know‐how flows only from the high R&D firm to the low R&D firm (but not vice versa). Though firms are ex ante identical, one obtains a unique asymmetric equilibrium (pair) in R&D investments, leading to interfirm heterogeneity in the industry. R&D cooperation by means of a joint lab is considered and compared to the non cooperative solution. The main part of the paper provides a second‐best welfare analysis in which we show that the joint lab yields a socially optimal R&D level subject to an equal treatment (of firms) constraint, which also coincides with the noncooperative solution in the absence of spillovers. We also investigate the welfare costs of this equal treatment constraint and find that they can be quite significant.     

Investment Incentives of a Regulated Dominant Firm

We study the investment incentives of a regulated, incumbent firm in a deregulation process. The regulator cannot commit to a long-term regulatory policy, and investment decisions are taken before optimal regulatory policies are imposed. We characterize the regulated incumbent's incentive to invest when a deregulation process is initiated and an unregulated firm enters the market as a result. The change in the marginal return to investment depends on how the investment changes the firm's virtual cost—the sum of its physical production and information costs. When the marginal return to investment increases due to deregulation, social welfare increases as a result of higher investment and more competition. Otherwise, the change in social welfare depends on the total of the effects in the fall of investment and increased competition. We also present conditions under which deregulation enhances welfare.     

Firm/interruptible gas pricing patterns in a regulated environment

Conclusion This study provides empirical tests for the effects of rate base regulation, curtailment priorities, fuel clauses, and elected commissioners on firm/interruptible gas pricing patterns. These regulations do alter observed pricing patterns with curtailment priorities, fuel clauses, and elected commissioners all producing net social gains. Rate of return regulation imposes social costs resulting in a net decrease in social welfare. Ignoring the political influences upon regulators, regulation generally encourages consumption at the peak relative to the off-peak. Nonetheless, overall social welfare is improved if all four types of regulatory characteristics are present, since most rates are reduced from their monopoly levels.     

The value of information in a simple duopoly model

This paper is concerned with the evaluation of information in a duopoly model in which the cost functions are subject to uncertainty. It explores how changes in information about the costs available to either firm affects the welfare of both firms along with the welfare of consumers. By comparing the ten possible types of information structures, it is shown that information may be detrimental, that improved information for one firm may or may not benefit the other firm and/or the consumer, and that it may be more desirable for a firm to gather information about the rival's cost rather than its own. All of these “irregular” results depend on the values of the variances of the costs and their correlation coefficient.     

Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice

In this paper a firm’s R&D strategy is assumed to be endogenous and allowed to depend on both internal firm characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. This yields three types of equilibria, in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms’ equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms’ incentives to engage in R&D, while excessive competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics.     

A national-security argument for trade protection

This paper constructs a two-period model in which a domestic monopoly firm produces a good given an amount of import of the good. In the second period, the monopoly firm faces a capacity constraint with regard to its production level. The production level in the first period sets the maximum quantity for the second period. We investigate the effects of quotas on welfare to examine the economic rationale of the national-security argument for trade protection. Under decreasing marginal costs of a monopoly firm, tightening the import quota may increase the domestic consumer surplus and the social welfare.     

Consumer confusion,obfuscation and price regulation

This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high‐cost firm chooses maximum obfuscation while the low‐cost firm chooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that in this setting there is a new role for price regulation as it leads to more transparent pricing. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low‐cost firm.     

Vertical integration, market foreclosure and quality investment

We study incentives to vertically integrate in an industry with vertically differentiated downstream firms. Vertical integration by one of the firms increases production costs for the rival. Increased production costs negatively affects quality investment both by the integrated firm and the unintegrated rival. Quality investment by both firms decreases under any (vertical integration) scenario. The decrease in quality invesment by both firms softens competition among downstream firms. By integrating first, a firm always produces the high quality good and earns higher profits. A fully integrated industry, with increased product differentiation, is observed in equilibrium. Due to increase in firm profits, social welfare under this structure is greater than under no integration.     

Partial privatization in mixed duopoly with price and quality competition

We analyze price and quality competition in a mixed duopoly in which a profit-maximizing private firm competes against a state-owned public firm. We first show that the welfare-maximizing public firm provides a lower quality product than the private firm when they are equally efficient. In order to maximize social welfare, government manipulates the objective of the public firm that is given by a convex combination of profits and social welfare. It is demonstrated that an optimal incentive of the public firm is welfare maximization under the absence of quality competition, but it is neither welfare maximization nor profit maximization under the presence of quality competition. The result supports a completely mixed objective between welfare and profit maximizations or partial privatization of the public firm.