Technology diffusion in a differentiated industry

This paper investigates the adoption timing pattern of a cost-reducing innovation in a differentiated oligopolistic industry. It compares price and quantity market competition with the second-best optimal adoption rule. The diffusion pattern typically depends on the degree of product differentiation, and on the ability of firms to precommit, or not, to a certain adoption date. When goods are imperfect substitutes, market competition leads always to later adoption dates than it is socially optimal. When goods are sufficiently close substitutesı the last adoption occurs always earlier than in the optimum; the first adoption might also occur earlier but only if preemption is a credible threat

Technology diffusion in a differentiated industry.

This paper investigates the adoption timing pattern of a cost-reducing innovation in a differentiated oligopolistic industry. It compares price and quantity market competition with the second-best optimal adoption rule. The diffusion pattern typically depends on the degree of product differentiation, and on the ability of firms to precommit, or not, to a certain adoption date. When goods are imperfect substitutes, market competition leads always to later adoption dates than it is socially optimal. When goods are sufficiently close substitutesı the last adoption occurs always earlier than in the optimum; the first adoption might also occur earlier but only if preemption is a credible threat.Innovation; Diffusion; Horizontal Differentiation; Imperfect Competition;

Cost reducing investiment, competition and industry dynamics

We characterize the dynamic equilibrium path ofa competitive industry with free entry and exit, where atomistic fmns undertake investment over time in order to reduce their future production costs. Investment reduces both total as well as marginal cost of production; however, the associated dynamic scale economies are eventually bounded. Cost reduction is deterministic and there are no inter-firm spill-overs. Marginal cost in any time period is stricdy increasing in output and active firms incur a positive fixed cost even if no output is produced. The industry equilibrium path is socially optimal. Equilibrium prices are (weakly) decreasing over time. Firms invest in cost reduction and eam negative net profit when they are young. In later periods, they face prices aboye their mínimum average cost, produce beyond their mínimum efficient scale and eam strictly positive net profit. No frrm enters after the initial time periodo Though all fmns are ex ante identical, sorne fmns may exit before others (shake-out). Exiting fmns have relatively "small size" compared to incumbents; as the industry matures, concentration and the average size of incumbent fmns increase. Heterogeneity in behaviour and size of fmns emerges endogenously through differences in their length of stay in the industry

Upstream horizontal mergers, bargaining, vertical contracts

Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains

Environmental consciousness and moral hazard international agreements to protect the environment

A group of countries that can potentially commit to cooperation to protect the environment are identified as environmentally-conscious countries. Conditions are examined under which they can provide self-financing side payments, to a second group of less environmentally-conscious countries, so that the two groups form a global or partial stable coalition that agrees to emit at the first-best global welfare optimum. A mechanism is also developed which must be incorporated into the agreement between the two groups, in order to induce all countries to emit at the desired level, even when global pollution has nonpoint source pollution characteristics

On centralized bargaining in a symmetric oligopolistic industry

In this paper we study interactions between labor and product markets, in an imperfectly competitive industry with centralized wage bargaining. Firms jointly bargain with the union over wages and then compete in prices or quantities. We show that the negotiated wage is independent of the number of firms, the degree of substitutability of firms' products, and the type of market competition, in a broad c1ass of industry specifications, including the standard syrnmetric linear demand system-linear one factor (labor) technology. This result is robust to various union objectives. Thus, unions are better-off as the market becomes more competitive because aggregate! employment increases. Finally,. motivated by the wage independence property, we propose that the bargained wage in a Bertrand homogenous market be taken as the limit of that of a differentiated market as the degree of substitutability goes to one

Downstream Research Joint Venture with Upstream Market Power

In this paper, we examine how the structure of an imperfectly competitive input market affects final-good producers’ incentives to form a Research Joint Venture (RJV), in a differentiated duopoly where R&D investments exhibit spillovers. Although a RJV is always profitable, downstream firms’ incentives for R&D cooperation are non-monotone in the structure of the input market, with incentives being stronger under a monopolistic input supplier, whenever spillovers are low. In contrast to the hold-up argument, we also find that under non-cooperative R&D investments and weak free-riding, final-good producers invest more when facing a monopolistic input supplier, compared with investments under competing vertical chains. Integrated innovation and competition policies are also discussed.Oligopoly; Process Innovations, Research Joint Ventures

Upstream horizontal mergers, bargaining, vertical contracts.

Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains.

Wages and Productivity Growth in a Competitive Industry.

The model studies the evolution of productivity growth in a compehtlve industry. The exogenous wage rate determines the firms' engagement in labor productivity enhancing process innovation. There is a unique steady state of the industry dynamics, which is globaIly stable. In the steady state, the number of active firms, their unit labor cost and supply depend on the growth rate but not on the level of the wage rate. In addition to providing comparative statics of the steady state, the paper characterizes the industry's adjustment path.Process innovation; Industry dynamic; Wages;

Union structure and firms incentives for cooperative R&D investments

This paper investigates the impact of alternative unionization structures on firms' incentives to spend on cost-reducing R&D activities as well as to form a Research Joint Venture, in the presence of R&D spillovers. We show that, in contrast to the "hold up" argument, if firms invest non-cooperatively and spillovers are low, R&D investments are higher when an industry-wide union sets a uniform wage rate than under firm-level unions. In contrast, investments are always higher under firm-level unions in the case of RJVs. Firms' incentives to form an RJV are non-monotonic in the degree of centralization of the wage-setting, with the incentives being stronger under an industry-wide union if and only if spillovers are low enough. Finally, centralized wage-setting as well as high unemployment benefits may hinder the formation of costly RJVs and their potential welfare benefits.Unions, Oligopoly, Cost-reducing Innovations, Research Joint Ventures, Spillovers