Intermediation in Innovation

The paper offers a new theoretical framework to examine the role of intermediaries between creators and potential users of new inventions. Using a model of university-industry technology transfer, we demonstrate that technology transfer offices can provide an opportunity to economize on a critical component of efficient innovation investments: the expertise to locate new, external inventions and to overcome the problem of sorting ‘profitable’ from ‘unprofitable’ ones. The findings may help explain the surge in university patenting and licensing since the Bayh-Dole Act of 1980. Furthermore, the study identifies several limitations to the potential efficiency of intermediation in innovation. ZUSAMMENFASSUNG - In diesem Papier stellen wir ein neues theoretisches Modell zur Analyse der Rolle von Intermediären zwischen Erfindern und potentiellen Nutzern von Erfindungen vor. Für den Transfer von Erfindungen aus Universitäten in den Industriebereich zeigen wir, daß Technologietransfer-Stellen den Marktteilnehmern die Möglichkeit bieten, sich die Kosten für den Aufbau der Expertise, neue externe Erfindungen zu lokalisieren und evaluieren, zu teilen. Die Ergebnisse unserer Studie können dazu beitragen, die signifikante Zunahme der Universitätspatente und - lizensen seit dem Bayh-Dole-Act von 1980 in den USA zu erklären. Darüber hinaus diskutieren wir Wohlfahrtswirkungen der Aktivität von Innovations-Intermediären.Intermediation, Market Microstructure, Matching Uncertainty, Innovation, Patent Licensing

The Theory of Assortative Matching Based on Costly Signals

We study two-sided markets with a finite numbers of agents on each side, and with two-sided incomplete information. Agents are matched assortatively on the basis of costly signals. A main goal is to identify conditions under which the potential increase in expected output due to assortative matching (relative to random matching) is completely offset by the costs of signalling. We also study how the signalling activity and welfare on each side of the market change when we vary the number of agents and the distribution of their attributes, thereby displaying effects that are particular to small markets. Finally, we look at the continuous version of our two-sided market model and establish the connections to the finite version. Technically, the paper is based on the very elegant theory about stochastic ordering of (normalized) spacings and other linear combinations of order statistics from distributions with monotone failure rates, pioneered by R. Barlow and F. Proschan (1966, 1975) in the framework of reliability theory

Spatial Competition in Credit Markets

Using Hotelling's two-stage model of spatial competition, we develop a lending model where the equilibrium outcome may be characterized by maximal differentiation - in contrast to Hotelling's model where firms have an incentive to reduce differentiation, as long as a pure-strategy price equilibrium exists. The difference is due to the specificities of banks' activities: banks perform independent tests to assess the credit-worthiness of their loan applicants, and thereby create a nongeographic customer heterogeneity. If banks are sufficiently pessimistic about the credit-worthiness of firms, they try to minimize the risk of default by moving away from the market centerBanking competition, Hotelling, information acquisition, credit-worthiness tests

Entry Deterrence in Durable-Goods Monopoly

Some industries support Schumpeter's notion of creative destruction through innovative entrants. Others exhibit a single, persistent technological leadership. This paper explores a durable-goods monopolist threatened by entry via a new generation of the durable good. It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. As a consequence, the industry tends to remain monopolized, with successive generations of the durable good being introduced by the incumbent monopolist. We show that entry deterrence by limit pricing can lead to underinvestment in innovation.

The Theory of Assortative Matching Based on Costly Signals

We study two-sided markets with a finite numbers of agents on each side, and with two-sided incomplete information. Agents are matched assortatively on the basis of costly signals. A main goal is to identify conditions under which the potential increase in expected output due to assortative matching (relative to random matching) is completely offset by the costs of signalling. We also study how the signalling activity and welfare on each side of the market change when we vary the number of agents and the distribution of their attributes, thereby displaying effects that are particular to small markets. Finally, we look at the continuous version of our two-sided market model and establish the connections to the finite version. Technically, the paper is based on the very elegant theory about stochastic ordering of (normalized) spacings and other linear combinations of order statistics from distributions with monotone failure rates, pioneered by R. Barlow and F. Proschan (1966, 1975) in the framework of reliability theory.

Intermediation in innovation

"The paper offers a new theoretical framework to examine the role of intermediaries between creators and potential users of new inventions. Using a model of universityindustry technology transfer, we demonstrate that technology transfer offices can provide an opportunity to economize on a critical component of efficient innovation investments: the expertise to locate new, external inventions and to overcome the problem of sorting 'profitable' from 'unprofitable' ones. The findings may help explain the surge in university patenting and licensing since the Bayh-Dole Act of 1980. Furthermore, the study identifies several limitations to the potential efficiency of intermediation in innovation." (author's abstract)"Die Autoren stellen ein neues theoretisches Modell zur Analyse der Rolle von Intermediären zwischen Erfindern und potentiellen Nutzern von Erfindungen vor. Am Beispiel des Transfers von Erfindungen aus Universitäten in den Industriebereich zeigen sie, daß Technologietransfer-Stellen den Marktteilnehmern die Möglichkeit bieten, sich die Kosten für den Aufbau von Expertise zu teilen, derer es bedarf, um neue externe Erfindungen zu lokalisieren und zu evaluieren. Vor diesem Hintergrund liefern die Ergebnisse der Studie eine Erklärung für die signifikante Zunahme der Universitätspatente und -lizenzen seit dem Bayh-Dole-Act von 1980 in den USA. Darüber hinaus werden Wohlfahrtswirkungen der Aktivität von Innovations-Intermediären diskutiert." (Autorenreferat

Entry deterrence in durable-goods monopoly

There are industries that tend to remain monopolized, with successive generations of a good being introduced by an incumbent monopolist. This paper investigates the tendency of persistent leadership in durable goods industry. In particular it explores the implications of the durability of a good on the pricing and innovation behavior of both the incumbent monopolist and a potential entrant. It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. Moreover, we demonstrate that entry deterrence by limit pricing may cause underinvestment in innovation