R&D incentives, compatibility and network externalities

This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity. --Network externalities,Innovation,Imperfect Competition

ICT, Consulting and Innovative Capabilities

This paper analyzes the impact of the decision to contract ICT consulting on firms' innovative incentives. The paper develops a theoretical model and estimates some of its implications for a sample of German firms. In particular, the paper estimates the average treatment effect of the decision to contract ICT consulting on firms' innovative incentives, considering the role of endogeneity and unobserved heterogeneity in the correlated random coefficient model. The paper shows three main results. First, the theoretical model shows that ICT consulting increases aggregate incentives to innovate. This result is not corroborated by the empirical application. ICT consulting does not affect neither the probability of introducing product or process innovations nor the number of such innovations. The empirical results show that ICT consulting affects negatively the value of the introduced product and processes innovation. Second, the theoretical model suggests that low productivity firms might evidence either lower, unaffected or higher incentives to innovate. The empirical application shows that low productivity firms exhibit higher incentives to innovate. Third, although the theoretical analysis shows that the lower the productivity level the more the incentives to contract ICT consulting, the empirical evidence is inconclusive on this matter. These results suggest that firms optimize their innovations portfolio through ICT consulting. --ICT Consulting,Competition and Innovation

Dynamic R&D incentives with network externalities

This paper studies the incentives to undertake uncertain R&D initiatives in a dynamic duopoly network industry. It is shown that network externalities positively affect the incentives to invest in R&D. In the model, competition resembles a preemption race and, therefore, market performance implies an overinvestment in R&D in comparison with the social optimum. Moreover, network externalities have an important impact in the dynamic evolution of the industry. Although in the long-run a single firm dominates the market (i.e. wins the race), short-run competition is very fierce and concentrated on neck-and-neck technological configurations. This short-run competition is fiercer and longer, the higher the level of network externalities. Policy measures that increase technological diffusion (i.e. mandatory licensing), increase the level of competition and/or prolong the short-run competition have an important positive impact on consumer welfare and on firms? R&D incentives. --Network externalities,Innovation,Imperfect Competition,Dynamic Games

Durable goods, innovation and network externalities

We develop a model of R&D competition between an incumbent and a potential entrant with network externalities and durable goods. We show that the threat of entry eliminates the commitment problem that an incumbent may face in its R&D decision due to the goods’ durability. Moreover, a potential entrant over-invests in R&D and an established incumbent might exhibit higher, equal or lower R&D investments in comparison with the social optimum. In our model, the incumbent’s commitment problem and the efficiency of its R&D level are determined by the extent of the network externalities

Price Behavior in an Inflationary Environment: Evidence from Supermarket Data

This paper analyzes several important aspects of price behavior using disaggregated weekly data on prices of supermarket products in Colombia between 1991 and 1994. The analysis shows that despite hight and persistent rates of inflation in the economy, price quotations persist on average for two months. The large proportion of observations for which stores opt not to change prices highlight the importance of menu costs, even in an economy accustomed to persistent double-digit inflation. Despite the seemingly hight levels of rigidity, the degree of real price erosion found before prices change are lower than those found in other inflationary economies. Price declines are not uncommon, and downward rigidity does not seem to be an issue in the Colombian inflationary environment. Aggregate price changes are also found to exert an important effect on relative price variation at the aggregate and commodity level.

ICT, consulting and innovative capabilities

This paper analyzes the impact of the decision to contract ICT consulting on firms' innovative incentives. The paper develops a theoretical model and estimates some of its implications for a sample of German firms. In particular, the paper estimates the average treatment effect of the decision to contract ICT consulting on firms' innovative incentives, considering the role of endogeneity and unobserved heterogeneity in the correlated random coefficient model. The paper shows three main results. First, the theoretical model shows that ICT consulting increases aggregate incentives to innovate. This result is not corroborated by the empirical application. ICT consulting does not affect neither the probability of introducing product or process innovations nor the number of such innovations. The empirical results show that ICT consulting affects negatively the value of the introduced product and processes innovation. Second, the theoretical model suggests that low productivity firms might evidence either lower, unaffected or higher incentives to innovate. The empirical application shows that low productivity firms exhibit higher incentives to innovate. Third, although the theoretical analysis shows that the lower the productivity level the more the incentives to contract ICT consulting, the empirical evidence is inconclusive on this matter. These results suggest that firms optimize their innovations portfolio through ICT consulting

R&D Incentives, Compatibility and Network Externalities

This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity

Dynamic R&D Incentives with Network Externalities

This dissertation analyzes the impact of network externalities on R&D competition in an oligopolistic industry. It focuses on the level of R&D investments, the social efficiency of those efforts and the role of networks compatibility. The analysis is taken under different specifications and assumptions to check the robustness of the results. It is concluded that network externalities provide an important incentive to invest in R&D but this incentive is inefficient from a social welfare point of view. These R&D investments represent a powerful mechanism to deter entry, avoid commitment problems, improve market position and affect consumers' expectations in network markets.Network Externalities; Innovation; Dynamic Games; Durable Goods

More bits - more bucks? Measuring the impact of broadband internet on firm performance

The paper provides empirical evidence for the causal impact of broadband Internet on the economic performance of German firms. Performance is measured in terms of labour productivity and realised process and product innovations. The analysis refers to the early phase of DSL expansion in Germany from 2001 to 2003, when roughly 60 percent of the German firms already used broadband Internet. Identification relies on instrumental variable estimation taking advantage of information on the availability of DSL broadband at the postal code level. The results show that broadband Internet has no impact on firms' labour productivity whereas it exhibits a positive and significant impact on their innovation activity. --labour productivity,innovation,broadband Internet

Consumer welfare and unobserved heterogeneity in discrete choice models : the value of alpine road tunnels

We investigate the sensitivity of consumer surplus estimates to parametric assumptions on individual preference heterogeneity in a discrete choice framework. We compare results from a parametric random coefficients logit model and a recently proposed nonparametric sieve estimator. In particular, we provide an assessment of the direct economic value of crossing the Alps for the European road freight sector. Using revealed preference data from a detailed survey on transalpine road freight traffic, we estimate the yearly cost of closing the Mont-Blanc Tunnel, which was closed for 3 years following a large accident in early 1999. Ultimately, our results permit the economic evaluation of security and transport policy measures affecting transalpine traffic. Our findings suggest that the way we model unobserved heterogeneity significantly affects our welfare results