Competition Among Institutions

Economic theory offers two different approaches to the analysis of group formation and the role of institutions. The general equilibrium approach explores the influence of the economic environment on the formation of groups. The game theoretic approach runs in the opposite direction; it explores the influence of institutions on economic outcomes. To integrate these approaches we consider situations in which institutions must compete for members. Our focus is on the fundamental interaction between memberships and policies. The policy that an institution adopts depends on its membership, while its membership depends on the policies of all the institutions. We provide the basic elements for a theory of competition among institutions: an abstract definition of an institution and the corresponding equilibrium concepts. We demonstrate by example, the possibility that equilibrium may not exist. In the absence of a general existence result, we pursue three different avenues. We begin with existence results based on maximization of a utilitarian social welfare function. This places strong restrictions on the decision-making process, although it covers a number of interesting political applications. This is followed by a continuity-based approach. Although quite general, it relies critically on an assumption that the institutions have certain idiosyncratic features. To handle cases without idiosyncrasies, we turn to an algebraic approach. Although existence is established, the result depends on the dimensionality of the problem. Together, these avenues provide a broad class of models for which equilibrium exists, covering cases with multiple dimensions, multiple institutions, and general institutional decision-making processes

Price discrimination through transactions bundling: The case of monopsony

This paper shows that for a price setting monopsony, offering to transact in a mixed bundle of goods of uncertain quality is profit enhancing. The magnitude of this enhancement relative to no bundling is greater the smaller the gap in the degree of quality uncertainty between the two goods purchased is. Moreover, contrary to coventional wisdom, the use of mixed purchase bundling by a monopsonist is trade enhancing. There is more room for a dramatic improvement in the volume of trade in a good with a low degree of quality certainty if its purchase is combined with a good of a substantially higher quality certainty

Coopetition of software firms in Open source software ecosystems

Software firms participate in an ecosystem as a part of their innovation strategy to extend value creation beyond the firms boundary. Participation in an open and independent environment also implies the competition among firms with similar business models and targeted markets. Hence, firms need to consider potential opportunities and challenges upfront. This study explores how software firms interact with others in OSS ecosystems from a coopetition perspective. We performed a quantitative and qualitative analysis of three OSS projects. Finding shows that software firms emphasize the co-creation of common value and partly react to the potential competitiveness on OSS ecosystems. Six themes about coopetition were identified, including spanning gatekeepers, securing communication, open-core sourcing and filtering shared code. Our work contributes to software engineering research with a rich description of coopetition in OSS ecosystems. Moreover, we also come up with several implications for software firms in pursing a harmony participation in OSS ecosystems.Comment: This is the author's version of the work. Copyright owner's version can be accessed at https://link.springer.com/chapter/10.1007/978-3-319-69191-6_10, Coopetition of software firms in Open source software ecosystems, 8th ICSOB 2017, Essen, Germany (2017

Internal Promotion Competitions in Firms

[Excerpt] Using a sample of skilled workers from a cross section of establishments in four metropolitan areas of the United States, I present evidence suggesting that promotions are determined by relative worker performance. I then estimate a structural model of promotion tournaments (treating as endogenous promotions, worker performance, and the wage spread from promotion) that simultaneously accounts for worker and firm behavior and how the interaction of these behaviors gives rise to promotions. The results are consistent with the predictions of tournament theory that employers set wage spreads to induce optimal performance levels, and that workers are motivated by larger spreads

Competing Complements

In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A + B bundle is valuable only when purchased together. Good A is supplied by a monopolist (e.g., Microsoft) and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibria. In the standard case where marginal costs are weakly positive, there is no pure strategy where the lower quality B firm obtains positive market share. We also consider the case where A has negative marginal costs, as would arise when A can expect to make upgrade sales to an installed base. When profits from the installed base are sufficiently large, a pure strategy equilibrium exists with two B firms active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B

Twenty challenges for innovation studies

With the field of innovation studies now half a century old, the occasion has been marked by several studies looking back to identify the main advances made over its lifetime. Starting from a list of 20 advances over the field’s history, this discussion paper sets out 20 challenges for coming decades. The intention is to prompt a debate within the innovation studies community on what are, or should be, the key challenges for us to take up, and more generally on what sort of field we aspire to be. It is argued that the empirical focus of our studies has failed to keep pace with the fast changing world and economy, especially the shift from manufacturing to services and the increasingly urgent need for sustainability. Moreover, the very way we conceptualise, define, operationalise and analyse ‘innovation’ seems somewhat rooted in the past, leaving us less able to grapple with other less visible or ‘dark’ forms of innovation

Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

As a long-time student of the public sector, I welcomed the opportunity to come to Washington as a member of the Council of Economic Advisers and later to become the Chairman of the Council, partly because it gave me an opportunity to study at first hand this immensely important part of our economy and society and to test my ideas against the reality of government in action

Optimal compatibility in systems markets

We investigate private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. We develop a new methodology to analyze competition on a torus and show that there is a fundamental conflict of interests between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers a better match with their ideal specifications. However, firms are likely to choose the minimal compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility