On Competition and the Strategic Management of Intellectual Property in Oligopoly

An innovative firm with private information about its indivisible process innovation chooses strategically whether to apply for a patent with probabilistic validity or rely on secrecy. By doing so, the firm manages its rivals’ beliefs about the size of the innovation, and affects the incentives in the product market. A Cournot competitor tends to patent big innovations, and keep small innovations secret, while a Bertrand competitor adopts the reverse strategy. Increasing the number of firms gives a greater (smaller) patenting incentive for Cournot (Bertrand) competitors. Increasing the degree of product substitutability increases the incentives to patent the innovation

Strategic Information Disclosure and Competition for an Imperfectly Protected Innovation

The imperfect appropriability of revenues from innovation affects the incentives of firms to invest, and to disclose information about their innovative productivity. It creates a free-rider effect in the competition for the innovation that countervails the familiar business-stealing effect. Moreover, it affects the disclosure incentives such that full disclosure emerges for extreme revenue spillovers (e.g., full protection and no protection of intellectual property), but either partial disclosure or full concealment emerges for intermediate spillovers. I analyze the implications of imperfect appropriability and strategic disclosure for the firms.profits and the probability of innovation.R&D competition, innovation, spillovers, information disclosure, strategic substitutes, free-rider effect, externality

The Effects of Disclosure Regulation on Innovative Firms: Common Values

Firms in an R&D race actively manage rivals’ beliefs by disclosing and concealinginformation on their cost of investment. The firms’ disclosure strategies affect theirincentives to invest in R&D, and to acquire information. We compare equilibria undervoluntary disclosure with those under mandatory disclosure in a model where the firms’cost of investment are identically independently distributed. Under voluntary disclosurefirms conceal bad news, and disclose good news only if little knowledge spills over toheir rival. Under mandatory disclosure firms expect higher profits for giveninformation acquisition investments, but they acquire less information. ZUSAMMENFASSUNG - (Die Wirkung von Offenlegungsvorschriften auf innovative Firmen: Perfekt korrelierte Werte) Unternehmen, welche an einem F&E -Wettbewerb teilnehmen, managen aktiv die Erwartungen ihrer Konkurrenten, indem sie gezielt entscheiden, ob sie Informationen über ihre Investitionskosten veröffentlichen oder geheim halten. Durch ihre Offenlegungsstrategien beeinflussen sie sowohl die Anreize Ihrer Konkurrenten, Informationen zu sammeln, wie auch deren Anreize, F&E zu betreiben. Anhand eines Modells mit vollständig positiver Korrelation zwischen den Investitionskosten der Unternehmen vergleicht der Beitrag Gleichgewichte in denen die Unternehmen freiwillig wählen, ob sie ihre Informationen offen legen wollen, mit den Gleichgewichten, bei denen Unternehmen ihre Information offen legen müssen. Bei freiwilliger Offenlegung veröffentlichen Unternehmen schlechte Nachrichten und behalten gute für sich, um Mitbewerber zu entmutigen. Bei Offenlegungspflicht erwarten Unternehmen typischerweise höhere Gewinne für vorgegebene Investitionen in Informationskosten, aber sie beschaffen sich weniger Information.R&D Competition, Information Acquisition, Disclosure Regulation

The Effects of Disclosure Regulation of an Innovative Firm

Firms in an R&D race actively manage rivals’ beliefs by disclosing and concealinginformation on their cost of investment. The firms’ disclosure strategies affect theirincentives to invest in R&D, and to acquire information. We compare equilibria undervoluntary disclosure with those under mandatory disclosure in a model where the firms’cost of investment are identically independently distributed. Under voluntary disclosurefirms conceal bad news, and disclose good news only if little knowledge spills over totheir rival. Under mandatory disclosure firms expect higher profits for giveninformation acquisition investments, but they may acquire less information. ZUSAMMENFASSUNG - (Die Wirkung von Offenlegungsvorschriften auf innovative Firmen: Unkorrelierte Werte) Unternehmen, welche an einem F&E -Wettbewerb teilnehmen, managen aktiv die Erwartungen ihrer Konkurrenten, in dem sie gezielt entscheiden, ob sie Informationen über ihre Investitionskosten veröffentlichen oder geheim halten. Durch ihre Offenlegungsstrategien beeinflussen sie sowohl die Anreize Ihrer Konkurrenten Informationen zu sammeln, wie auch deren Anreize, F&E zu betreiben. Anhand eines Modells, in dem die Investitionskosten der Unternehmen unabhängig verteilt sind, vergleicht der Beitrag Gleichgewichte in denen die Unternehmen freiwillig wählen, ob sie ihre Informationen offen legen wollen, mit den Gleichgewichten, bei denen Unternehmen ihre Information offen legen müssen. Können die Unternehmen selbstständig entscheiden, ob sie ihre Informationen offen legen wollen, so führt dies dazu, dass sie schlechte Nachrichten verbergen und gute Nachrichten nur dann veröffentlichen, wenn wenig ihres Wissens von den Konkurrenten genutzt werden kann. Sind die Unternehmen jedoch verpflichtet ihre Informationen offenzulegen, so erwarten sie einerseits höhere Profite für gegebene Informationsinvestitionen, aber investieren andererseits u.U. weniger in die Informationsbeschaffung.R&D Competition, Disclosure Regulation, Knowledge Spillovers

The Effects of Disclosure Regulation of an Innovative Firm

A firm actively manages its rival’s beliefs by disclosing and concealing information on the size of its process innovation. The firm’s disclosure strategy results from the trade-off between two effects on product market incentives. First, the firm’s competitor learns that the firm is efficient, which discourages the competitor. Second, the competitor becomes more efficient himself, since he can expropriate part of the disclosed knowledge, which encourages him. I characterize the equilibrium disclosure strategies for any knowledge spillover in a simple Cournot duopoly model, and illustrate the results graphically. Moreover, I compare the strategic disclosure equilibria with equilibria under non-strategic disclosure.process innovation, Cournot competition, strategic substitutes, information disclosure, knowledge spillovers

Regulating Complementary Input Supply: Production Cost Correlation and Limited Liability

We study the optimal regulation of complementary input supply. The regulator chooses for either a monopolist producing two complementary inputs in fixed proportion, or two independent firms producing one input each. Under independent input supply, non-monotonic regulatory schemes become optimal for high correlation between input production costs. The optimal regulatory choice depends on the correlation between costs, and on the producers’ liability structure. Under limited liability monopolistic input supply gives a higher expected welfare whenever the correlation coefficient is sufficiently small and positive. For higher correlation independent input supply is chosen, and the regulatory scheme is non-monotonic in total costs. ZUSAMMENFASSUNG - (Regulierung des Angebots komplementärer Inputs: Korrelation von Produktionskosten und beschränkte Haftung) Dieser Beitrag untersucht die optimale Regulierung des Angebots zweier komplementärer Inputs. Der Regulierer entscheidet sich dabei entweder für einen Monopolisten, der zwei komplementäre Inputs in einem konstanten Verhältnis zu einander produziert oder für zwei unabhängige Firmen, die jeweils einen der Inputs roduzieren. Bei unabhängigem Angebot des Inputs sind nicht monotone Regulierungsverträge optimal für den Fall einer hohen Korrelation zwischen den Produktionskosten der Inputs. Die optimale Regulierungsentscheidung hängt von der Korrelation zwischen Kosten und der Haftungsstruktur des Produzenten ab. Bei beschränkter Haftung führt das Inputangebot durch einen Monopolisten zu einer höheren erwarteten Wohlfahrt, wenn der Korrelationskoeffizient klein genug und positiv ist. Für höhere Korrelation wird das unabhängige Angebot der Inputs gewählt und die Regulierungsverträge sind hinsichtlich der Gesamtkosten nicht monoton.

Beyond the Need to Boast: Cost Concealment Incentives and Exit in Cournot Duopoly

This paper studies the incentives for production cost disclosure in an asymmetric Cournot duopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitor from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firm is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.cost asymmetry, Cournot duopoly, exit, information disclosure, precommitment

On Competition and the Strategic Management of Intellectual Property in Oligopoly

An innovative firm chooses strategically whether to patent its process innovation or rely on secrecy. By doing so, the firm manages its rival’s beliefs about the size of the innovation, and affects the incentives in the product market. Different measures of competitive pressure in the product market have different effects on the equilibrium patenting choices of an innovative firm with unknown costs and probabilistic patent validity. Increasing the number of firms (degree of product substitutability) gives a smaller (greater) patenting incentive. Switching from Bertrand to Cournot competition gives a smaller (greater) patenting incentive if patent protection is weak (strong).Bertrand and Cournot competition, oligopoly, product differentiation, entry, asymmetric information, strategic disclosure, stochastic patent, trade secret, process innovation, imitation

International Capital Mobility: Evidence from Panel Data

Krol (1996) reports estimates of the saving-investment correlation, based on panel regressions, that are much lower than commonly found in the literature. This note argues that this low estimate is not related to the panel estimation technique, as Krol claims, but largely to the inclusion of Luxembourg in the sample. Panel estimation only reduces the correlation’s estimate by about 0.12.capital mobility, panel estimation, saving investment correlation

Inside the Impossible Triangle: Monetary Policy Autonomy in a Credible Target Zone

This paper examines the trade-off between exchange rate stability and monetary autonomy for a target zone. Using the guilder-mark target zone in the pre-EMU period as a case study, we empirically estimate how much policy discretion the Dutch central bank still enjoyed and how much had been ceded to the German central bank. The sum of these two measures is an estimate of the policy autonomy under a free float. We find that the narrow guilder-mark target zone still permitted a modest degree of policy independence. This result suggests that intermediate exchange rate regimes may offer an attractive trade-off compared to the corner solutions (free float and monetary union), which is consistent with the ‘fear of floating’ phenomenon.exchange rate regimes, monetary union, monetary autonomy, fear of floating, trilemma