A dual economy model of endogenous growth with R&D and market structure

This paper develops a dual economy endogenous growth model to consider the effects of market structure and innovation on the rate of growth of an economy. There is an innovative goods sector where firms consistently invest in research and development to produce new products within a framework of monopolistic competition. Firms in the traditional goods sector produce a homogenous good, compete in a form of oligopoly (quantity competition), and seek to reduce their production costs. It is shown that growth is increasing in the market power that firms in the innovative goods sector obtain but decreasing in the equilibrium number of firms in the traditional goods sector.     

Competing engines of growth: Innovation and standardization

We study a dynamic general equilibrium model where innovation takes the form of the introduction of new goods whose production requires skilled workers. Innovation is followed by a costly process of standardization, whereby these new goods are adapted to be produced using unskilled labor. Our framework highlights a number of novel results. First, standardization is both an engine of growth and a potential barrier to it. As a result, growth is an inverse U-shaped function of the standardization rate (and of competition). Second, we characterize the growth and welfare maximizing speed of standardization. We show how optimal protection of intellectual property rights affecting the cost of standardization vary with the skill-endowment, the elasticity of substitution between goods and other parameters. Third, we show that, depending on how competition between innovating and standardizing firms is modelled and on parameter values, a new type of multiplicity of equilibria may arise. Finally, we study the implications of our model for the skill premium and we illustrate novel reasons for linking North–South trade to intellectual property rights protection.     

Endogenous Cartel Formation

This paper investigates the endogenous formation of cartels in a supergame framework in which cheating on the cartel agreement results in the ejection of only the defector from the cartel while collusion continue s amongst the non-cheating members. A more sophisticated notion of cartel stability than has been analysed hitherto is developed here, and it is shown that cartels are even less stable than they are generally believed to be. When firms produce heterogeneous goods and set prices, cartels comprising a small fraction of the industry's firms are shown to be viable. The emergence of two or more cartels within the same industry is seen not only to be a distinct possibility but also to be quite likely     

Employee share ownership in a unionised duopoly

Profit sharing schemes have been analysed assuming Cournot competition and decentralised wage negotiations, and it has been found that firms share profits in equilibrium. This paper analyses a different remuneration system: employee share ownership. We find that whether firms choose to share ownership or not depends on both the type of competition in the product market and the way in which workers organise to negotiate wages. If wage setting is decentralised, under duopolistic Cournot competition both firms share ownership. If wage setting is centralised, only one firm shares ownership if the degree to which goods are substitutes takes an intermediate value; otherwise, the two firms share ownership. In this case, if the union sets the same wage for all workers neither firm shares ownership. Therefore, centralised wage setting discourages share ownership. Finally, under Bertrand competition neither firm shares ownership regardless of how workers are organised to negotiate wages.     

Productivity,the Terms of Trade,and the Real Exchange Rate: Balassa–Samuelson Hypothesis Revisited

The paper examines how the Balassa–Samuelson hypothesis is affected by a modern variation of the standard model that allows product differentiation (within the traded and nontraded goods sectors) with the number of firms determined exogenously or endogenously. The hypothesis is found to be fragile in the modified framework. Small variations in the elasticity of substitution between home and foreign traded goods (within the range of estimates suggested in the literature), for example, can make the effect of a traded‐goods productivity improvement on the real exchange rate negative or positive, as well as small or large. This result provides a potential explanation of the mixed empirical results that have been obtained on the relationship between productivity and the real exchange rate.     

Minsky’s financial fragility: an empirical analysis of electricity distribution firms in Brazil (2007–2015)

This article applies Hyman P. Minsky’s insights on financial fragility to analyze the behavior of electricity distribution firms in Brazil from 2007 to 2015. More specifically, it builds an analytical framework to classify these firms into Minskyan risk categories and assess how financial fragility evolved over time, in each firm and in the sector as a whole. This work adapts Minsky’s financial fragility indicators and taxonomy to the conditions of the electricity distribution sector and applies them to regulatory accounting data for more than 60 firms. This empirical application of Minsky’s theory for analyzing firms engaged in the provision of public goods and services is a novelty. The results show an increase in the financial fragility of those firms as well as of the sector throughout the period, especially between 2008 and 2013.     

Linking corporate sustainability and innovation in supply chain management – evidence of a Taiwan leading glass recycling company

This empirical study presents a combination of insights from corporate sustainability practices, supply chain management, and innovation literature, and a case study to discover new understandings on factors influencing firms to incorporate sustainable innovation initiatives into their supply chain practices. There is an apparent lack of literature in this field due to its modernity and evolving nature. Also, there is a lack of insights into how firms could translate sustainable innovation initiatives into practice. This study addresses this gap by examining a successful glass recycling company through the lenses of sustainable innovation context and the Global Reporting Initiative G3 Guideline framework. Primary data are collected through observations and in-depth interview before it is coded and analysed using nVivo. The findings show that sustainable innovation practices are mainly directed at improving the technological processes, resource sharing, and reduction of production cost among supply chain partners. A conceptual sustainable innovation framework is also proposed. This study contributes to sustainable innovation literature by providing insights into the evaluation of a firm's innovative sustainability efforts.     

Embodied technological change in supplier dominated firms

This paper identifies the role of new capital goods as the main external source of innovation for supplier dominated firms belonging to traditional consumer good industries. After a brief survey on the role of inter-industry technology flows, the results of a field study are presented concerning the amount of technological change embodied in the new machinery acquired during the 1980s by a sample of Italian manufacturing firms producing traditional consumer goods. We show that industries and firms differ in the quality of technological change embodied in (or allowed by) new capital goods, and that such differences depend on industry-specific and firm-specific factors. The former primarily refer to product characteristics, the latter mainly to the age and the affiliation of the firm with an industrial group. The final section contains some policy suggestions for fostering the diffusion of new machinery (embodying technological change) among small firms and traditional industries.     

Market size and entry in international trade: Product versus firm fixed costs

This paper develops a theoretical framework to infer the nature of fixed costs from the relationship between entry patterns in international markets and destination market size. If fixed costs are at the firm level, firms take advantage of an intrafirm spillover by expanding firm‐level product range (scope). Few firms enter with many products and dominate international trade. If fixed costs are at the product level, an interfirm spillover reduces the fixed costs to export for all firms producing the product. The resulting entry pattern consists of many firms exporting different varieties of the same product. Using cross‐country data on firm and product entry, I find empirical evidence consistent with product‐level costs. More firms than products enter in larger markets offering their consumers lower prices and a greater variety of goods within the product category.     

The Distributional Effects of International Fragmentation

Economic globalization causes an increasing international fragmentation (disintegration) of value‐added chains, whereby firms outsource components of production to foreign markets. There is a high level of concern about unwelcome distributional effects. This paper provides a theoretical treatment of this issue within a general Heckscher–Ohlin framework, allowing for an arbitrary number of goods, factors, and fragments. It shows how a fragmented production equilibrium is disturbed by lower costs of fragmentation, and it introduces the concept of effective prices of fragments to derive general results that characterize the distributional consequences of an increase in international fragmentation occurring simultaneously in several industries.     

Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Import to invest: Impact of cultural goods on cross-border mergers and acquisitions

Existing studies have demonstrated the necessities of formal institutions and negativity of cultural distance in international investments. Surprisingly, China’s exponential increase of cross-border mergers and acquisitions (M&As) and its low-quality institutions and distinct cultural norms contradict these studies. This paper aims to tackle this puzzle by examining the role of cultural imports in cross-border M&As. Our empirical evidence suggests that the trade of cultural goods significantly increases the volume and realized economic gains of M&As from importing to exporting countries. Our results are robust to alternative measures and an instrumental variable approach. On exploring potential channels, we find that imported cultural goods could drive cultural convergence between countries and also mitigate the adverse effect of cultural distance on merger outcomes. We further show that cultural imports could help firms in overcoming contractual barriers at target countries. This paper provides practical implications for cross-border investments in the current world with intensified cultural conflicts.     

Playing monopoly in the creek: Imperfect competition, development, and in-stream flows

Land ownership and control of development in new and frontier cities is often concentrated. Local public goods, such as wetlands and riparian habitats, can be adversely affected by development. Regulatory pressure to protect these local public goods may not emerge until after some development has occurred. When development rights are insecure, an incentive exists to accelerate early development, an incentive that increases with the number of firms. Further, multiple equilibria may exist, which can result in large increases in development for small increases in the number of firms. When firms are uncertain about how the regulator values the local public good, development may be further accelerated and there may be even more equilibria.     

Variety‐Controlling Public Policy Under Addiction and Saturation

This paper constructs a tractable general equilibrium model for investigating the dissimilar effects of addiction and saturation on consumption and public policy. By introducing an industry‐specific intertemporal consumption externality, we provide clear analytical results that a lump‐sum subsidy for firms can increase welfare in the presence of a negative externality (saturation). A tax can accomplish the same given a positive externality (addiction). Unlike existing studies of cultural goods, these results are not based on assumptions concerning exogenous different preferences across groups, but rather on conventional monopolistic competition and consumption habit formation models in macroeconomics.     

Domestic trade protection in vertically-related markets

We consider trade policy in a setting where home country firms are fully dependent on vertically-integrated foreign firms for supplies of a key input. We find that vertically-integrated firms' strategic considerations play an important role and that, in particular, a tariff on final goods may either increase or decrease the domestic price of final goods. The import of final goods is always taxed to extract and shift rents from foreign firms, while the import of intermediate goods can be either taxed or subsidized. The market structure is shown to be an important consideration when making trade policy.     

HORIZONTAL MERGERS IN A DIFFERENTIATED COURNOT OLIGOPOLY

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two‐firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two‐firm mergers. Third, an initially non‐profitable two‐firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.     

Welfare effects of monetary policy in an economy with vertical production and trade: An analysis based on the perspective of local currency pricing

By incorporating the factor of firms' asymmetric price setting behavior into the two-country model with vertical production and trade, we analyze how one country's monetary policy affects the welfare of both countries. We show that an expansionary monetary policy has (i) a beggar-thyself effect if the ratio of the non-expanding country's intermediate goods firms that set their export prices in the local currency is significantly low and (ii) a prosper-thy-neighbor effect in our model regardless of the ratio of either country's intermediate goods firms that set their export prices in the local currency.     

Loss-leader pricing and upgrades

A new theory of loss-leader pricing is provided in which firms advertise low (below cost) prices for certain goods to signal that their other unadvertised (substitute) goods are not priced too high. The theory is applied to the pricing of upgrades. The results contrast with most existing loss-leader theories in that firms make a loss on some consumers (who buy the basic version of the good) and a profit on others (who buy the upgrade).     

Intellectual property rights,product complexity and the organization of multinational firms

This paper studies how the intellectual property right (IPR) regime in destination countries influences the decision of firms between procurement from related parties and from independent suppliers while the latter may involve technology sharing or not. Using firm‐level data on the mode choice for each transaction and a new product complexity measure, results confirm that firms are generally reluctant to source complex goods from outside firm boundaries. However, when technology is shared, IPRs promote outsourcing of more complex goods whereas without technology sharing, IPRs promote outsourcing of less complex products that are prone to reverse engineering and simpler to imitate.     

Knowledge integration and network formation

In this paper, we highlight how inter-firm collaboration networks are influenced by the knowledge composition of goods in an industry. For this purpose, we carry out an agent-based simulation study in which firms integrate their competencies under different knowledge-based regimes. In this way networks form. The results reveal that knowledge regime significantly influences the network structure, and interaction among firms not only is very intensive when the products are specialized but also have common knowledge among them.