Complementarity, coordination and compatibility: The role of fixed costs in the economics of systems

We analyze industry equilibrium and incentive to compatibility when goods produced by different producers generate utility only when consumed as component parts of a system. We assume the presence of two systems, each composed of some basic component and a set of differentiated complementary products. The combination of complementarity between the two components of the system and of fixed costs in the production of the complementary product results in a form of network effect. We focus on the role played by the size of the fixed costs in the production of the complementary products in determining the size of this system effect and, by this means, the structure and types of equilibria that may be observed: monopolistic or duopolistic, symmetric or asymmetric. We also highlight the consequence of the same fixed costs for the private and social incentives to render the systems compatible.     

Optimal Licensing Contracts and the Value of a Patent

We extend Kamien and Tauman's (1986) analysis of the value of a patent. We find that an inventor can always design a fixed fee plus royalty contract such that his revenue is equal to the profit a monopoly endowed with the innovation could make on the market. This implies that the social value of a patent can be strictly negative whenever the patented innovation is of bad quality. We also explain why a principal can have an interest in using performance-based contracts although the principal and the agents are risk-neutral, information is symmetric, and agents' actions are verifiable.     

Trade Gains, Paretian Transfer and the Tragedy of the Commons

Consider trade liberalization between two countries, each of which produces two private goods and provides on a voluntary basis one public good (the common). In these circumstances, what are the consequences of trade liberalization on the production of the public good and on welfare in both countries? Using a Ricardian framework, we first show that the opening of trade increases the opportunity cost of producing the public good in both countries and will therefore reduce the aggregate supply of the public good. On the other hand, at the autarky equilibrium, only one country supplies the public good, the other “free rides”. The analysis of the welfare incidence of the opening of trade then reveals that the country which provides the public good under autarky always enjoys a welfare gain from trade while the free rider under autarky does not unless the terms of trade are sufficiently in its favour to compensate for the reduction in the supply of the common. Finally, if all countries involved in trade liberalization can without cost coordinate their supplies of the common, then the implementation of the first-best outcome is shown to be possible with a conditional Paretian transfer scheme.     

Licensing a new product with non-linear contracts

Abstract .  This paper looks at a situation where a licensor owns a patent on a technology that allows the production of a new good. The licensor seeks to license its innovation to a set of producers that differ according to their marginal cost of producing an existing good. We show that the licensor is able to obtain the profit a monopolist would achieve by producing the new good. The equilibrium licensing contract specifies both a fixed fee and a royalty scheme based on the production of a licensee.     

“The End of Autocracy”: Analysing Representations of the Austro-Hungarian Dissolution as the Foundation of US Hegemonic Discourse

This paper investigates the manner in which the break-up of the Austro-Hungarian Empire was represented to the US public using a qualitative content analysis of articles from three major US newspapers in October and November, 1918. Against a geopolitical backdrop of the increasing global presence of the United States and assertion of its influence in international affairs, the analysis shows that three key themes were emphasised in the popular US political narratives at the end of World War I: national self-determination, legitimacy of governance, and the role of Eastern European diasporas and representatives in the United States. Throughout the essay, these themes are connected to key discussions of US hegemony in political geography. The critical geopolitics approach highlights how the articles signposted boundary markers of identity at a crucial, transitional point in US history, helping to crystallise an American sense of ‘Self’ increasingly based upon world leadership, and sending compelling messages about the expected behaviours of nations, states, and individuals. This work concludes that the stage was set early in the twentieth century for a phase of US global intellectual and moral leadership, and that the ascendance of US hegemony globally was accompanied by an active media project at home which sought to redefine Americans' collective sense of themselves as vanguards of liberal democratic values in a world of outdated and undemocratic regimes.     

Exit, sunk costs and the selection of firms

Summary. This paper aims to identify the cost characteristics of exiting firms whenever firms are playing an infinite horizon supergame with time-invariant cost and demand functions. With more than two firms, the problem of which firms exit is quite similar to a coalition formation one. Solving this coalition formation problem, we obtain that the exiting firms are those with higher average cost functions whenever reentry is costless while, whenever reentry is unprofitable, the exiting firms are those with lower marginal (and possibly average) cost functions. Since reentry costs are typically sunk, our analysis points out that the presence of sunk costs affects not only the size (as it is well known) but also the composition of the industry. Received: April 5, 1995; revised version: January 28, 1998     

Licensing Innovations with Exclusive Contracts

We analyze licensing contracts specifying an exclusive territory clause and a fixed fee as a form of payment. While commonly observed, the effects of such licensing contracts have not been investigated in the licensing literature. We find that they can generate revenues for an innovator equal to those that would be obtained by a monopolist using the cost-reducing innovation that is being licensed. This result, however, depends on three factors: The size of the market relative to the pre-innovation marginal cost, the quality of the innovation, and the degree of substitutability between the goods being produced in the market.