Technology Strategy And Product Diversity

This paper considers a three-stage game of a differentiated oligopoly: firms first make their entry decisions, then they choose production technologies and in the third stage of the game they decide product prices. The technology choice can be understood as selecting one from a pool of those recently available as well as developing a new technology through innovative activities. The resulting market equilibrium is then compared with the social optimum. The main conclusions are that a monopolistically competitive market will typically undersupply both product variety and production scale. R&D competition in a free entry differentiated oligopoly will lead to insufficient R&D investment at firm and industry levels.     

On the theory of monopolistic competition under demand uncertainty

Establishing a model of a monopolistically competitive industry in which risk-averse Cournot firms act under demand uncertainty and in which the output of individual firms and the number of firms in the industry are both endogenously determined by free entry and exit, this paper attempts to investigate the effects of demand uncertainty on the market equilibrium of a monopolistically competitive industry. It is assumed, for calculus simplification, that the firms are identical in the sense that they have the same monopolistic power and the same production technology. The paper presents some interesting and useful comparative statics results which are contrary to those proposed in the existing papers.This is a revised version of my paper which was firstly presented to the annual meeting of the Japanese Association of International Economics held in 1988 and then included partially in my book published in 1989. I am indebted to professors D. Bös, S. Fujino, M. Ohyama, M. Nishijima, to the members of the Public Economics Research Seminar in Bonn, and to two anonymous referees for their helpful discussions and useful suggestions. Any remaining errors, however, are my responsibility.     

Externalities,entry bias,and optimal subsidy policy for cleaner environment

This paper analyses alternative subsidy schemes and long-run entry bias in a new industry that creates positive environmental externalities (both generation externalities and externalities associated with interindustry technology spillovers). It demonstrates that per-unit subsidy scheme, despite attracting fewer firms, results in higher industry output and economic surplus in the equilibrium compared with the expenditure equivalent lump-sum subsidy scheme. However, the later leads to higher total surplus, unless spillover externalities are sufficiently small. Further, the free-entry equilibrium number of firms may be excessive or insufficient. A key finding of this paper is that the first-best equilibrium outcome can be implemented through a unique combination of per-unit subsidy and lump-sum subsidy/tax, which involves positive government expenditure in the presence of positive externalities.     

Product differentiation and welfare: Comment

In general it may be argued that the monopolistically competitive industry is not consistent as viewed from the game-theoretic point of view, and it ignores the strategic aspects of competition. This comment points out specifically how the welfare implications derived from a Nash equilibrium model in which the goods are imperfectly substitutes used by Spence in many articles are incorrect. The total quantities offered by firms at Nash equilibria within this model and those of the market demand curve at the same price levels are not equal. All emanate from the misspecification of the price equation with substitutable goods by Spence which is not appropriate for the Nash equilibria model with many firms. Moreover, some other very important papers of Spence which follow are critisized for the same mathematical contradiction.     

Entry,growth, and survival: The new learning on firm selection and industry evolution

This paper tries to shed some light on the seeming paradox posed by the findings in the industrial organization literature that (1) the bulk of firms in an industry are not only very small, but also sufficiently small so that they are operating at a sub-optimal scale of output, and (2) entrepreneurs are apparently not deterred from starting new firms even in industries where scale economies play an important role. A dynamic view of the process of firm selection and industry evolution is that new firms typically start at a very smal scale of output. Because this level of output may be sub-optimal, the firm must grow in order to survive. The empirical evidence supports such a dynamic view of the evolutionary nature of industries. Viewed through a dynamic lens, the often-observed asymmetric size distribution of firms becomes more understandable. The persistence of an asymmetric firm-size distribution skewed towards small enterprises presumably reflects a continuing process of entry into industries and not necessarily the survival of such small and suboptimal enterprises over a long period of time.     

Efficiency in International Trade with Firm Heterogeneity and Networks

This paper examines integrated effects of firm heterogeneity and communication network services on international trade. Patterns and effects of trade are analyzed in a general equilibrium model where firms with different productivity levels share among them the cost of network services and compete in a monopolistically competitive market for a differentiated good. The paper reveals that the more efficient country in the production of the differentiated good is not always the net exporter of the good. The less efficient country also has the chance to expand the industry and then to become the net exporter in this intra‐industry trade due to the combination of the efficiency effect induced by firm heterogeneity and the cost‐sharing effect by the existence of the network service industry.     

On industry equilibrium under uncertainty

The paper considers an industry consisting of numerous firms that produce a homogeneous output, the demand for which is a random variable. Each firm belongs to one of K possible types, and each type is characterized by a U-shaped average cost curve. It is shown that: (i) the first-order necessary conditions for efficient investment and output are sufficient; accordingly, the set of competitive equilibria is non-empty and coincides with the set of efficient allocations; (ii) a dynamic process of free entry and exit of firms, guided by expected profits, is quasistable and every limit point is a competitive equilibrium. The paper also defines a sufficient condition for uniqueness of the competitive equilibrium, in which case it is stable.     

Cost Signals under Uncertain R&D Outcomes

When it is difficult for firms to differentiate their products from those of their competitors, research and development (R&D) spending on process innovation to lower the cost of production is crucial for profitability. However, the information asymmetry in production costs that results from innovation reduces the efficiency of all firms in a market for a homogeneous good. We employ a signalling game to discuss the feasibility of utilising R&D spending and output levels as cost signals in an environment of quantity competition. The results show that a firm does not spend its money on R&D solely to signal the type of cost. Rather, R&D spending may be chosen as a cost signal over the output level only if expenditures on R&D can lead to a sufficiently high probability of reducing production costs.     

信号显示博弈与国际寡头最优进入策略的选择

在信息不完全的国际市场竞争中,寡头企业可以通过观察竞争者不同市场进入策略带来的收益为信号帮助判断其真实的成本类型.文章以FDI和出口贸易作为信号推证了在成本类型不确定条件下混同均衡和分离均衡存在的条件;文章的推论表明如果分离均衡条件满足,双边企业可以获得完全信息条件下的均衡产出,如果混同均衡条件满足,双方则将按照不完全信息博弈规则选择古诺纳什产出.     

THE POTENTIAL FOR SHORT‐RUN SHIFTING OF A CORPORATE PROFITS TAX

Can the owners of a firm shift a corporate profits tax to consumers? Not in the short run if the tax is stated as a proportion of profits and the firm is a profit maximizer. But what if the firm wishes to pursue a strategy other than profit maximization, say revenue maximization subject to a profit constraint? Under such a condition the firm's reaction to a tax or tax increase might be a price rise that captures part of the foregone profits. We show that firms which operate at a point on their demand curve that differs from profit maximization have an incentive to raise price in response to the tax – and that high cost firms have a greater incentive to raise price than do low cost firms. Our empirical analysis of the US beer industry confirms this finding, and sheds light on the Krzyzaniak–Musgrave analysis of the 1960s which suggested that the corporation income tax produced significant short‐run shifting.     

Entry and exit as a source of aggregate productivity growth in two alternative technological regimes

This paper proposes a neo-Schumpeterian model in order to discuss how the mechanisms of entry and exit contribute to industry productivity growth in alternative technological regimes. Our central hypothesis is that new firms generate gains in aggregate productivity by increasing both the productivity level and competition intensity. By assuming that firms learn about the relevant technology through a variety of sources, and by allowing a continuous flow of entry and exit into the market, our study shows that firm exit and output contraction take mostly place among less productive firms, while output expansion and entry are concentrated among the more efficient ones. The greater is the competitive pressure generated by new entrants, the higher is the expected productivity level of established firms. Overall, our analysis suggests that micro analysis is the proper complement to aggregate industry studies, as it provides a considerable insight into the causes of productivity growth.     

Cost Competition, Fragmentation, and Globalization

This paper proposes a model in which the removal of barriers to trade and factor mobility is associated with endogenous fragmentation of the value–added chain. Fragmentation is the outcome of cost competition—the profit–maximizing choice of cost structure by monopolistically competitive firms. An expansion of the integrated trading area can induce globalization not only in the horizontal dimension associated with love–of–variety preferences, but also vertically as firms vary specialization of production stages. While increased trade is likely to induce fragmentation when the number of firms is fixed, free entry can either reverse or intensify this result.     

Imperfect Competition and Growth with Entrepreneurial Risk

Abstract. This paper analyzes an overlapping generations endogenous growth model of occupational choice under risk in a two-sector economy with intermediate and final goods. Agents choose between business ownership in the monopolistically competitive intermediate goods industry or employment as a worker in this sector. Firm-specific profits are stochastic. Occupational choice under risk endogenizes the number of firms and products in the intermediate goods industry. The analysis shows that economic performance and growth both depend on the entrepreneurship rate and are inefficiently low compared with an economy with perfect markets for pooling risks. Monopolistic competition partly offsets the negative income effects from a too low level of entrepreneurial risk-taking.     

中国工业产业结构与企业技术研发行为的实证分析

产业结构升级一直是我国经济学界所关心的一个问题，工业产业的升级更是一个众所关注的焦点。本文在前人研究的基础上，利用中国工业产业数据，采用了经典的SCP范式模型．对熊彼特的两个经典假说进行了验证。发现竞争与企业利润同时对企业研发具有促进作用．熊彼特两个相互矛盾的结论同时得到了支持。通过对应分析，我们对中国工业内产业不同特点和企业不同特点进行了归类，提出国有企业在不同行业的产值比重是导致了这两个看似矛盾的结论同时并存的原因。     

Profit sharing in a competitive environment

Nearly all theoretical discussions of profit sharing to date have, following Weitzman, assumed that firms are monopolistic or monopolistically competitive. The present paper investigates the employment effects of a profit sharing scheme in a competitive environment. It is found that profit sharing can actually reduce employment in the long run, since the profit share may produce subnormal profits and exit of existing firms.     

组织距离对虚拟产业集群内企业创新的影响

用组织距离衡量虚拟产业集群内企业间的"组织接近",在双寡头古诺模型的分析框架下,研究组织距离对虚拟产业集群内企业的创新水平、产量和利润的影响。结果表明:在完全信息情况下,虚拟产业集群内企业的创新投入水平越高,则企业联合利润越大;在不完全信息情况下,集群内企业的均衡产量都是其创新投入水平的增函数,但若逆需求函数的斜率较大,则不完全信息对不拥有完全信息的企业的影响较小。最后求得要实现集群内企业的均衡产量随着组织距离的加大而增加则企业的创新水平要满足的条件。     

Endogenous Market Structure and Technology Licensing

This paper analyses the optimal licensing strategy of a licensor firm that competes with potential licensee firms in an industry with endogenous entry. The optimal licensing strategy of the licensor firm is to have zero royalty and positive fixed fees, which is a result that sharply contrasts with the existing literature whereby licensor firms tend to charge positive royalties to their rival licensees. Under the optimal licensing strategy, the licensor firm and the licensee firms are active in the market, but not the non‐licensed firms. This equilibrium market structure is socially desirable if the fixed production cost is not too small.     

A theory of competitive industry dynamics with innovation and imitation

Empirical evidence on industry life-cycle reveals a pattern in which innovation rates remain fairly stable or are perhaps even higher at early stages, while patenting increases sharply as the industry matures. This increase in patenting in later stages is accompanied by net exit and lower rates of output growth and price decline. In this paper, we develop a dynamic model of a competitive industry with innovation and imitation that is consistent with these stylized facts. We derive an equilibrium growth path, along which leading firms invest in increasing the stock of technological knowledge and choose not to prevent imitation by other firms as long as the industry remains relatively small. As the industry expands including new entry, the leaders' optimal amount of investment gradually declines. We show that under some rather general conditions, there would exist a scale of the industry where innovating firms would choose to start preventing free imitation, bringing further expansion of the industry through new entry to a halt and causing net exit.     

COMPETITIVE LONG RUN INDUSTRY EQUILIBRIUM AND FACTOR-PRICE UNCERTAINTY*

In this paper we have considered competitive long run industry equilibrium with factor-price uncertainty. We discussed the long run equilibrium output of firms with risk neutrality, output price and their responses to changes in uncertainty, factor price and industry demand. In the first part of this paper we have derived a result that, given risk neutrality, the firms operate at proper capacity, i.e. where expected long run marginal cost is equal to expected long run average cost, as shown in the case of output-price uncertainty. This result is, however, different from that obtained from Sheshinski and Dréze (1976). From the comparative static analysis we first discovered that even under risk neutrality factor-price uncertainty affects the long run industry equilibrium: that is, a mean preserving increase in uncertainty leads firm's to enter the industry, because they can decrease expected long run costs as the variability of factor price increases. Consequently, output price goes down. In contrast, firm size is kept invariable in response to its increase as long as the cost function is separable, i.e. the separability of the cost function holds when production functions are the Cobb-Douglas and CES types used commonly in empirical work, although firm size might, generally, be affected by the increase. It is an interesting fact that firm size and industry size will express different responses to a change in risk. The result that the long run industry equilibrium with cost uncertainty is explicitly affected is a sharp contrast to the result under output-price uncertainty and provides a new aspect for understanding about the behaviour of the industry with uncertainty. Secondly, increased factor-price causes the number of firms in the industry to decline and output price to rise. In addition, firm's size will expand with its increase if that factor is inferior, while the effect on firm size is ambiguous if it is normal. The firm's output, i.e. firm size, is, however, kept constant if the cost function is separable. Thirdly, the long run equilibrium output of the firm remains intact but the number of firms increases as industry demand rises. This result holds, regardless of the firm's attitude towards risk. Finally, we find throughout the paper that the functional form of the cost function plays a significant role in determining the behaviour of the industry with factor-price uncertainty.     

Sequential Entry in a Vertically Differentiated Market

This paper considers a sequential entry game of homogeneous firms in a vertically differentiated market. A firm can choose any variety of products, with a fixed cost per product. Each product can be withdrawn afterwards without exit costs. Then each firm chooses one product at most in equilibrium because of a commitment problem. The first firm chooses the highest quality if the fixed cost is so large that subsequent entry is blockaded. It chooses middle quality to deter entry of a low–quality firm if the fixed cost decreases. Hence everyone becomes worse off as the entrant becomes more dangerous. JEL Classification Numbers: D43, L13.