The role of patents in cartel stability

Motivation: Oligopolistic firms entering a collusive agreement often face the prisoner dilemma problem which makes such agreements inherently unstable. There has been a wide discussion in the literature on a variety of solutions to stabilize cartel arrangements. Only recently, it has been pointed out that patents could play an important role in cartel creation and functioning. However, there is a need for a formal modelling to better understand the role of patents in market competition. Aim: In this paper, we consider the impact of patent rights on the competition of duopolists in the final product market. We assess the incentives of firms holding essential patents to create a cartel. Our main objective is to investigate the role of patents in cartel stability. Results: Using game-theoretical approach, we show that it is beneficial for the patent-holding duoplists to form a cartel. Moreover, it is demonstrated that the existence of patents may help eliminate the prisoner dilemma problem faced by the participants of collusive agreement and significantly contribute to cartel stability. These conclusions suggest that patents may play an important role in restricting market competition

Research Joint Ventures and Cartelization of Industries

AbstractThe aim of this paper is to investigate the impact of the firms’ behavior in the product market on their decisions at the R&D stage. We compare the consequences of the Stackelberg-type competition of two firms for the R&D investments with the situation of a cartelized industry under the assumption of quadratic cost functions. Numerical analysis shows that the lowest values of R&D efforts occur when the companies form a research joint venture. Moreover, greater R&D expenditures can be observed when a research joint venture is formed in a cartelized industry rather than under a Stackelberg-type duopoly

Strategic Buybacks of Sovereign Debt

We consider a transaction costs model of sovereign debt buybacks. We show that both secret and publicly known buybacks are profitable for the debtor country. Furthermore, the government of the debtor country would like to spend all of its initial endowment to buy back its debt as soon as possible. When the initial endowment of the government is publicly known, the equilibrium outcome of the secret buyback model is the same as in the public buyback model. However, the equilibrium outcomes are different when the initial endowment is private information of the government. Under reasonable conditions, the secondary market price under publicly observable buybacks is lower than the price under secret buybacks. Therefore the government prefers the former over the latter when the initial endowment is not commonly known.Secret buybacks, International debt, Secondary markets

Patent Hold-up and Royalty Stacking: The Case of Multiple Downstream Firms

AbstractThe objective of this paper is twofold. First, we study the patent hold-up problem in game-theoretic framework. We show that in subgame perfect equilibrium of the patent hold-up game the innovating manufacturer exerts reduced effort to develop the new product and the patent holder obtains the entire value of product innovation. Second, we show that royalty stacking, which is believed to magnify the patent hold-up, may cause less severe problems than the ones predicted by Lemley and Shapiro [11] when competition on the downstream product market is introduced

Powstawanie i stabilność karteli heterogenicznych

The article focuses on the emergence and operation of cartels in sectors in which companies differ in terms of production costs. The author shows that stable cartels can operate in sectors made up of enterprises that are heterogeneous in terms of costs and based on price leadership. However, when it comes to the cartel formation process, there is a distinct difference between homogeneous and heterogeneous sectors. While the formation of a cartel in the case of homogenous firms may be difficult due to the 'free-rider' problem, the author notes, in the case of heterogeneous companies no such obstacles exist and it can be expected that the process of creating a stable cartel will end in success. The analysis was made using the author's own model of the cartel formation process in the form of a single-period non-cooperative game with simultaneous decisions made by participants. To investigate the behavior of enterprises in the formation and operation of cartels, the Nash equilibrium concept was used. On the basis of the results obtained, it can be concluded that in the case of a sector with heterogeneous enterprises, the role of antitrust offices significantly increased in comparison to markets with homogenous firms. The theoretical analysis made by the author is illustrated with a case study for a district heating pipe cartel

Bargaining over debt rescheduling

The objective of this paper is to investigate the bargaining over debt rescheduling between a sovereign borrower and a foreign lender in a more general framework than in the preceding literature. We propose a model in which the impact of the bargaining power of the creditor and the debtor can be analyzed in the situation of debt overhang. The concept of Nash bargaining solution is applied to predict the behaviour of international financial market’s participants. The extended framework of debt renegotiations allows to identify several possible equilibria that could serve as potential resolutions of the debt overhang problem. In an illustrative numerical example, we show that a significant level of forgiveness on the part of the lenders is indispensible in the process of bargaining over debt rescheduling. However, the actual size of the forgiveness varies with the specific distribution of the bargaining power between the debtor and the creditor

PRAKTYKA ZWALCZANIA KARTELI W UNII EUROPEJSKIEJ

The objective of this paper is to overview the methods of detection and elimination of illegal collusions among firms in the European Union and to evaluate the effectiveness of these methods. The main legal regulations regarding competition were presented, and the key tools of cartel detection in the EU were analysed. The need for a greater application of economic analysis to fight cartels was formulated

Monopolization through acquisition

This paper considers the possibility of monopolizing a three-firm industry through acquisition of rivals in the absence of the restrictions imposed by the antitrust authorities. The analysis is conducted in two models: a static and a dynamic model of monopolization by a single buyer. In contrast to preceding models, a firm owner is allowed to use mixed strategies in order to decide whether to sell his firm or not. The static model implies that the monopolization through acquisition can be profitable. However, the dynamic formulation of the problem suggests that the expected profits are much smaller, and may not be sufficient to cover any fixed costs associated with the acquisition process. Moreover, the probability of selling the firm by its owner is almost zero, which makes the whole monopolization process extremely unlikely

Monopolization through acquisition

This paper considers the possibility of monopolizing a three-firm industry through acquisition of rivals in the absence of the restrictions imposed by the antitrust authorities. The analysis is conducted in two models: a static and a dynamic model of monopolization by a single buyer. In contrast to preceding models, a firm owner is allowed to use mixed strategies in order to decide whether to sell his firm or not. The static model implies that the monopolization through acquisition can be profitable. However, the dynamic formulation of the problem suggests that the expected profits are much smaller, and may not be sufficient to cover any fixed costs associated with the acquisition process. Moreover, the probability of selling the firm by its owner is almost zero, which makes the whole monopolization process extremely unlikely

"The Efficiency of Foreign Borrowing: The Case of Poland"

The main objective of this paper is to examine the efficiency of foreign investment borrowing by Poland in the 1970s. That decade was of particular significance in the post-war history of Central and Eastern Europe. For the first time after the World War II, Poland – a major country in the socialist block – opened up to western economies by increasing foreign trade and by taking loans to finance the imports of modern technology and investments. Since there has been a major disagreement about the economic impact of the loans, we make an attempt to resolve this controversy. The considerations are conducted in a macroeconomic model. Based on the econometric analysis, we conclude that the efficiency of foreign investment borrowing was relatively high. It means that the policy of using external sources to finance economic growth was fully justified