Globalization and Political Geography

I study a model of geopolitical organization endogenizing the size of nations, of their public spending and of their degree of openness. The optimal geography may not be a stable equilibrium and the Alesina-Spolaore bias toward too many nations tends to be confirmed. However, multiple equilibria can emerge with globalization backlash associated with large nations and high protectionism and equilibria with smaller countries and high openness which are also Pareto superior. A dynamic version of the model shows stable paths of decreasing size of nations, increasing globalization and (at least initially) increasing public spending. Such a process seems consistent with the historical experience, but it may converge toward a steady state with excessive globalization, too many countries and typically too much government spending.

Endogenous Market Structures and Strategic Trade Policy

We characterize the optimal export promoting policies for international markets whose structure is endogenous. Contrary to the ambiguous results of strategic trade policy for markets with a fixed number of firms, it is always optimal to subsidize exports as long as entry is endogenous, under both competition in quantities and in prices. With homogenous goods the optimal export subsidy is a fraction 1/€ of the price, where € is the elasticity of demand, the exact opposite of the optimal export tax in the neoclassical trade theory. A similar argument can be applied to show the general optimality of R&D subsidies and of competitive devaluations to promote exports in foreign markets where entry is endogenous.Trade policy, Export Subsidies, Competitive Devaluations, Endogenous Market Structures

Endogenous Market Structures and Corporate Finance

We characterize the optimal financial structure as a strategic de- vice to optimize the value of a firm competing in a market whose struc- ture is endogenous. Contrary to traditional results based on duopolies and depending on the form of competition, we show the general opti- mality of moderate debt financing whenever positive shocks increase the marginal profitability of strategies that reduce prices, indepen- dently from whether they are strategic susbtitutes or complements. We derive the general formulas for the optimal financial structure un- der Cournot and Bertrand competition with endogenous entry and cost uncertainty and extend the results in many directions.Financial structure, Debt, Modigliani-Miller theorem, Endogenous entry

Endogenous Market Structures and International Trade

I extend the endogenous market structures approach to international trade theory and policy. When markets are characterized by strategic interactions and endogenous entry, opening up to trade decreases the price level, and increases concentration and the production of each firm, with a positive competition effect on welfare. With endogenous entry of foreign firms in the domestic market it is optimal to set a positive import tariff decreasing in the ratio between entry costs and market size. With endogenous entry of international firms in an integrated market, the optimal subsidy to domestic production is always positive and independent from the relative size of the domestic market. Implications for multinationals engaged in FDIs, indirect trade promotion and the lobbying are also analyzed.Endogenous entry, gains from trade, import tariff, production subsidy

The Endogenous Market Structures Approach. A Non-technical Survey with Applications to the Crisis and Future Scenarios for the New Economy

The EMSs approach to macroeconomics introduces strategic interactions and endogenous entry decisions in the analysis of aggregate phenomena as business cycle, international trade and growth. This survey provides a non-technical discussion of the applications of the EMSs approach to positive and normative issues, and relates these with recent debates on the current recession, future scenarios for glabalization, policymaking and the New Economy.

The Engine of Growth

I develop a Schumpeterian model where the engine of growth is in the microeconomic structure of the patent races and derive new results on the determinants of growth. Under decreasing marginal productivity in the R&D sector, the equilibrium is characterized by small firms investing too little and the growth process is dynamically ine?cient; the optimal policy for innovation always implies R&D subsidies. When the incumbent monopolists are leaders in the patent races, they engage in large R&D investment and their persistent leadership enhances growth. Other sources of growth may reduce investment inducing a paradoxical negative correlation between growth and R&D spending even if innovations are the main engine of growth. In the open economy, growth is driven by the largest country and increases with its relative size and openness. In a monetary economy, price stickiness induces an inverted U relation between inflation and long run growth.Growth, Innovation

The Theory of Market Leaders, Antitrust Policy and the Microsoft Case

The New Economy, characterized by dynamic, global and innovative markets, requires a new way to approach many economic issues and also a new way to approach policymaking. This work will analyse a new approach toward competition policy based on recent progress in the theory of market leaders and discuss its implications with special reference to the markets in the New Economy, whose distinctive features, namely high fixed costs of R&D, less relevand marginal costs of production and network e?ects, require a di?erent approach from traditional markets. Close attention will be given to the software market, whose market leader has been (and still is) the subject of the attention of antitrust authorities around the world.The work is organized as follows. In Section1 I will present a brief overview of antitrust policy in US and EU and I will try to motivate the need for a new approach to competition policy, especially for the markets in the New Economy. Section 2 will survey traditional approaches to competition policy, while Section 3 will present the innovations associated with the theory of market leaders. Section 4 will apply the new approach to general issues of abuse of dominance with particular reference to the software market and to the Microsoft case. Section 5 will deal with bundling issues again with reference to the software market. Sections 6 will move to competition for the markets and to interoperability issues which are crucial for the dynamic markets of the New Economy. Section 7 concludes, while the Appendix contains some more technical results on the behaviour of market leaders.

Endogenous Market Structures and Contract Theory

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive pro?ts in spite of free entry.Strategic delegation, Incentive contracts, Screening contracts, Franchising, Tying, Endogenous market structures

Endogenous Entry and Antitrust Policy

This article derives antitrust implications for markets where entry can be regarded as endogenous (contrary to most analysis within the post-Chicago tradition). Many applications concern issues of abuse of dominance. Endogenous entry requires a wide revision of our understanding of the role of incumbents in pricing, producing in the presence of network externalities and multi-sided markets, bundling products, price discriminating and delegating to retailers through vertical restraints: when entry is endogenous, leaders adopt aggressive strategies without exclusionary purposes and without affecting welfare negatively. Endogenous entry has also implications for the analysis of mergers (that take place only if create enough cost efficiencies and do not harm consumers), the evaluation of collusive cartels (that are unfeasible in markets where entry is endogenous) and state aids for exporting firms (which are always unilaterally optimal for international markets with free entry). The spirit of the policy recommendations of the Chicago school is broadly supported by our analysis in a solid game-theoretic framework.Antitrust, Endogenous entry, Leadership, Chicago school

Leadership in Multi-sided Markets

I analyze the role of leadership in multi-sided markets as online advertising. Search and display advertising are better characterized by (respectively) quantity and price competition. A platform that reached dominance in search may have an incentive to limit services to consumers to be aggressive with the advertisers, to exploit its scale in search to build barriers to entry, or to adopt click-weighted auctions to manipulate the pricing of sponsored links. On the other side, a dominant platform in display advertising may increase the rewards of content providers to increase prices on advertisers, or may adopt exclusive clauses to predate on other platforms.Multisided markets, Leadership, Dominance