Last-in first-out oligopoly dynamics

This paper extends the static analysis of oligopoly structure into an infinite- horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first- out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms’ equilibrium entry and survival decisions. Bresnahan and Reiss’s (1993) empirical analysis of oligopolists’ entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game- theoretic foundation for that structure.Oligopolies

Increasing returns and perfect competition: The role of land

competition;land economics

Capital Mobility and Asset Pricing

We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return. Those fees also depend on the bargaining power of the investor, in light of potential alternative intermediaries. In equilibrium, the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets.capital mobility, market frictions, financial intermediation, law of one price

Insecure Property Rights and Growth: The Roles of Appropriation Costs, Wealth Effects, and Heterogeneity

We extend the model of insecure property rights by Tornell and Velasco (1992) and Tornell and Lane (1999) by adding three features: (i) extracting the common property asset involves a private appropriation cost, (ii) agents derive utility from wealth as well as from consumption, and (iii) agents can be heterogeneous. We show that both an increase in the appropriation cost and, when appropriation costs vary across agents, an increase in the degree of heterogeneity of these costs reduce the growth rate of the public capital stock. We also show that, in the interior equilibrium, the private asset can have either a lower or a higher money rate of return than the common property asset.corruption, property rights, growth, appropriation cost

Competing with Big Data

This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information

Endogenously determined price rigidities

Game Theory;Price Theory;Voting

A homotopy approach to the computation of economic equilibria on the unit simplex

Equilibrium Theory

Intellectual Property and Biodiversity: When and Where are Property Rights Important?

An important issue in the life sciences industries concerns the nature of the incentive mechanism that should govern the production of innovation within this R&D sector. We look at the specific problem of coordinating the supply of inputs across very different agents - North and South - that must each supply inputs in order to generate innovations from the industry. The current arrangement in this industry provides for a single property right at “end of the pipeline”, i.e. where marketing of the innovation occurs. This property rights scenario raises two problems, one of efficiency and one of equity. The key question asked here pertains to the number and placement of property rights that should be instituted to address this property rights failure. Should one establish new property rights in traditional knowledge alone; property rights in genetic information alone; or in both? We demonstrate that in a world in which traditional knowledge and genetic information are complements in the production of R&D, a resolution of the property rights failure in genetic information also may resolve the allocation failure in traditional knowledge even in the absence of a distinct property right. The reason is that traditional knowledge of the nature of private information is comparable to a trade secret. Traditional knowledge holders may use this informational advantage to improve their benefit by capturing some informational rent. A new property right is important to enable bargaining and coordination to occur across the industry, but a single property right is probably sufficient to enable coordination between the two agents.Biodiversity Prospecting, Traditional Knowledge, Genetic Resources, Intellectual Property Rights, Sequential R&D