R&D: Competition, Risk, and Performance

Anticipated post-innovation collusion encourages R&D effort, but realized collusion later yields deadweight losses. In balancing this trade-off, Bertrand industries sometimes outperform Cournot; sometimes not. Both usually out perform perfectly collusive industries. The optimal level of collusion is often less collusive than Cournot duopoly..

Taxation and market power

"We analyze the incidence and welfare effects of unit sales taxes in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist." (author's abstract)"Dieser Artikel untersucht Inzidenz- und Wohlfahrtseffekte einer Mengensteuer in experimentellen Monopol- und Bertrand-Märkten. Im Einklang mit der ökonomischen Theorie sind Firmen ohne Marktmacht in der Lage, einen großen Anteil der Last einer Steuererhöhung an die Konsumenten weiterzugeben. Dies gilt unabhängig davon, ob die Käufer simuliert sind oder die Kaufentscheidungen durch reale Käufer getroffen werden. In Monopolmärkten trägt der Monopolist einen großen Anteil der Last einer Steuererhöhung. Werden die Kaufentscheidungen durch reale Käufer getroffen, ist dieser Anteil jedoch kleiner als mit simulierten Käufern, da reale Käufer im Experiment das Preissetzungsverhalten des Monopolisten einschränken." (Autorenreferat

The Diffusion of New Technology and the Market for an Innovation

This article shows that the diffusion of a capital-embodied process innovation results from a pattern of decreasing incremental benefits and adoption costs for later adoptions. Strategic behavior is inessential to this finding. We develop a method for comparing diffusion rates for different market structures in the capital equipment market. We consider cases with market power on the seller's side of the market and on the buyers' side of the market, a case with no market power, and the welfare-optimal case. We find that a joint venture adopts an innovation more slowly than other market regimes to protect existing capital investments and that the adoption rate is slower than is socially optimal. A monopoly supplier, on the other hand, adopts at a rate faster than is socially optimal. This result is usually also the case when there is no market power. Finally, we show that the monopoly supplier accelerates adoptions faster than in the case where there is no market power, but retards later adoptions. Market power thus makes a difference in diffusion rates, and on which side of the market that power lies makes a considerable difference.

R&D: Competition, Risk, and Performance

Anticipated postinnovation collusion encourages R&D effort, but realized collusion later yields deadweight losses. In balancing this tradeoff, Bertrand industries sometimes outperform Cournot; sometimes they do not. Both usually outperform perfectly collusive industries. The optimal level of collusion is often less collusive than Cournot duopoly. In Bertrand industries, too few firms do R&D. The same goes for long-shot or high-cost projects in all industries. However, in perfectly collusive industries, too many firms invest when a project has medium to high chances of success. Investment by Cournot industries is often close to optimal.

Comparative Statics for Oligopoly: Demand Shift Effects.

When demand rises in an imperfectly competitive industry, price, output, profits, consumer surplus, and welfare may individually rise or fall. The possibilities are thus broader than with either a demand shift under competition or a cost shift in either typ e of industry. Systematic relationships are established showing, howe ver, that the pattern of effects cannot be arbitrary. Imperfect compe tition is necessary for profits to fall when demand rises-profits alw ays rise with either perfect competition or perfect collusion. This a gain contrasts with the cost shift case, where imperfect competition is not necessary for perverse profit effects. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.