Market Structure and the Direction of Technological Change

We study a model where innovation comes in two varieties: improvements on existing products, and new products that expand the scope of a technology. We make this distinction in order to highlight how market structure can determine not only the quantity of innovation but also its direction. We study two market structures. The first is the canonical one from the endogenous growth literature, where innovations can be developed by anyone, and developers market their own innovations. We then consider a more concentrated industry, where all innovation and pricing for a given technology is monopolized. We study the implications of the different market structures for both types of innovation, focusing on differences they induce in the direction of technological change. We apply our model model to the case of a hardware/software technology and analyze which market structure offers greater profits to a monopolist who can monopolize either hardware or software. We compare social welfare across the market structures, and discuss whether one type of innovation should be subsidized over anotherMarket Strucuture, Innovation

Information Spillovers in Asset Markets with Correlated Values

Abstract We study information spillovers in a dynamic setting with privately informed traders and correlated asset values. A trade of one asset (or lack thereof) can provide information about the quality of other assets in the market. We show that, because the information content of trading behavior is endogenously determined, there exist multiple equilibria when the correlation between asset values is sufficiently high and the market is sufficiently transparent. The equilibria are ranked in terms of both trade volume and efficiency. We study the implications for policies that target market transparency as well as the market's ability to aggregate information. Total welfare is higher when the market is fully transparent than when it is fully opaque. However, both welfare and trading activity can decrease in the degree of market transparency. If traders have asymmetric access to transaction data, transparency levels the playing field, reduces the rents of more informed traders, but may reduce total welfare. Finally, we show that information is not necessarily efficiently aggregated as the number of informed traders becomes arbitrarily large

Challenging Conformity: A Case for Diversity * Willemien Kets †

Abstract Why do diverse groups outperform homogeneous groups in some settings, but not in others? We show that while diverse groups experience more frictions than homogeneous ones, they are also less conformist. Homogeneous groups minimize the risk of miscoordination, but they may get stuck in an inefficient equilibrium. Diverse groups may fail to coordinate, but if they do, they tend to attain efficiency. This fundamental tradeoff determines how the optimal level of diversity varies with social and economic factors. When it is vitally important to avoid miscoordination, homogeneous groups are optimal. However, when it is critical to implement new and efficient practices, diverse groups perform better. * Part of the material incorporated here was previously in a paper entitled "A belief-based theory of homophily" by the same authors (Kets and Sandroni, 2015a). We thank David Ahn, Larbi Alaoui, Sandeep Baliga, Vincent Crawford, Vessela Daskalova, Georgy Egorov, Tim Feddersen, Matthew Jackson, Wouter Kager, Rachel Kranton, George Mailath, Niko Matouschek, Friederike Mengel, Rosemarie Nagel, Alessandro Pavan, Antonio Penta, Nicola Persico, Debraj Ray, Yuval Salant, Larry Samuelson, Paola Sapienza, Rajiv Sethi, Eran Shmaya, Andy Skrzypacz, Jakub Steiner, Colin Stewart, Jeroen Swinkels, and numerous seminar audiences and conference participants for helpful comments and stimulating discussions

Calorie Posting in Chain Restaurants

We study the impact of mandatory calorie posting on consumers' purchase decisions using detailed data from Starbucks. We find that average calories per transaction fall by 6 percent. The effect is almost entirely related to changes in consumers' food choices—there is almost no change in purchases of beverage calories. There is no impact on Starbucks profit on average, and for the subset of stores located close to their competitor Dunkin Donuts, the effect of calorie posting is actually to increase Starbucks revenue. Survey evidence and analysis of commuters suggests the mechanism for the effect is a combination of learning and salience. (JEL D12, D18, D83, L83)