Persistence of Monopoly and Research Specialization

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.Persistence of Monopoly, Efficiency Effect, Replacement Effect, Stochastic Innovations

Profitability, success probabilities, and incentives for cooperative R&D

As is widely conjectured, duopolists form a cost-sharing cooperative R&D alliance to develop a product - regardless of the probability of research success is either very high or very low. This study establishes that most low probabilities of research success cannot induce a financially successful cooperative R&D alliance. Incorporating the constraints in non-negative expected profits eliminates more than 95% probability of the parameter space where the probability of success is lower than 0.5. Our results further demonstrate that non-negative expected profits are attainable when the monopoly profit is not large in relation to duopoly profits, the fixed cost of R&D investment is low and the demand is large.Cooperative R&D; uncertainty; profitability

Differentiated Duopoly and Horizontal Merger Profitability under Monopoly Central Union and Convex Costs

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex production costs) and centralised unionisation in a differentiated duopoly model. It is pointed out that the wage fixed by a monopoly central union in the post-merger case is higher than in the pre-merger/Cournot equilibrium, opening up the possibility that merger reduces profits. Indeed, it is shown that this “reversal result” actually applies when the central union is sufficiently little interested to wages with respect to employment. Moreover, the lower the degree of substitutability between firms’ products and the higher the workers’ reservation wage, the higher ceteris paribus the probability that profits decrease as a result of the merger.merger profitability, unionised duopoly, convex costs

Concession contract renegotiations : some efficiency versus equity dilemmas

The authors analyze the possibility of tradeoffs between efficiency and equity as well as the possibility of distributional conflicts in the context of renegotiation of infrastructure contracts in developing countries. To do so, they present a model in which contracts are awarded by auctioning the right to operate an infrastructure service to a private monopoly, and consider the possibility of renegotiation. To identify the potential sources of tradeoffs, they trackthe possible outcomes of different renegotiation strategies for the monopoly running the concession and for the two groups of consumers-rich and poor-who alternate in power according to a majority voting rule. Among the model? most important policy implications is this: if having firm-driven renegotiations is a major concern, efficiency should not be the only consideration in selecting an operator. Indeed, consumers may want to award the concession to a less efficient firm if that would reduce the probability of renegotiation, since a lower probability of firm-driven renegotiations (due to demand shocks, for example) is associated with higher welfare for all service users.Environmental Economics&Policies,Labor Policies,Markets and Market Access,Economic Theory&Research,International Terrorism&Counterterrorism,Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Access to Markets,International Terrorism&Counterterrorism

Heterogeneous multiple bank financing: does it reduce inefficient credit-renegotation incidences?

Small and medium-sized firms often obtain capital via a mixture of relationship and arm's-length bank lending. We show that such heterogeneous multiple bank financing leads to a lower probability of ineefficient credit foreclosure than both monopoly relationship lending and homogeneous multiple bank financing. Yet, in order to reduce hold-up and coordination-failure risk, the relationship bank's fraction of total firm debt must not become too large. For firms with intermediate expected profits, the probability of ineefficient credit-renegotiation is shown to decrease along with the relationship bank's information precision. For firms with extremely high or extremely low expected returns, however, it increases. --Relationship lending,asymmetric information,financial distress,hold-up,coordination failure

Media bias and electoral competition

This paper examines the incentives of ideological media outlets to acquire costly information in a context of asymmetric information between political parties and voters. We consider two market structures: a monopoly media market and a duopoly one. We show that if each party has the support of a media, either party has the same probability of winning the election. However, if just one of the parties has the support of the media, the results might well change, as this party will get into office with a higher probability than the other party. We also analyze voters' welfare in this context and show that the important aspect is whether a media industry exists, and not the number of media outlets.Election, Accountability, Media, Bias

Market Structure and Schumpeterian Growth

We present a discrete-time version of an otherwise standard Schumpeterian growth model. Discrete time exhibits two important differences from continuous time. First, the probability of successful innovation cannot be homogeneous of degree one in inputs. A natural R&D analogue to constant returns to scale implies a Poisson production function with diminishing marginal product of inputs. Second, R&D firms sometimes innovate simultaneously. The resulting market conduct is critical. We consider both Bertrand competition and collusion among successful innovators. Surprisingly, the industry demand for R&D inputs does not depend on the number of firms in the R&D sector if Bertrand competition ensues following ties. In contrast, demand for R&D inputs is higher if ties are expected to result in collusion. In general equilibrium, Bertrand competition leads to random switching between monopoly and competitive production. Under collusion, production is always at the monopoly level, but there is faster growth. Numerical simulations suggest that this also leads to higher welfare.growth, market structure

Unemployment and employment protection in a unionized economy with search frictions

In theoretical literature, the effects of employment protection on unemployment are ambiguous. Higher employment protection decreases job creation as well as job destruction. However, in most models, wages are bargained individually between workers and firms. Using a conventional matching model in which a monopoly union sets wages, I show that employment protection can unambiguously increase unemployment. Interestingly, I find that tightening the restrictions on redundancies and dismissals may even increase the probability of dismissal. --employment protection,search and matching models,unemployment,unions

Binomial R&D Races and Growth

In each period, we have an R&D race among N competitive R&D firms, each with probability π of discovering a successful new technique for producing an intermediate good used in producing the economy's final consumption good. The winner of a race earns a monopoly profit over a generally uncertain interval. Each R&D firm faces distinctive "lottery" and "duration" uncertainty in each period. Numerical examples illustrate the growth behavior of the economy linked to the R&D sector.binomial R&D race, growth