The Introduction of New Product Qualities by Incumbent Firms: Market Proliferation versus Cannibalization

This study analyzes the optimal provision of goods in a market characterized by vertical product differentiation. We consider a duopoly model in which incumbents may introduce a new product with certain quality, and decide whether to keep or to withdraw the existing product from the market. We find that the strategic and cannibalization effects dominate, such that no room is left for discrimination among consumers. The innovator always withdraws the existing product from the market, in order to reduce price competition and to avoid cannibalizing its new product demand. In contrast to horizontally differentiated markets, firms are better off not to offer a range or interval of product qualities in vertically differentiated markets. Hence, firms fare better, despite offering a smaller variety of goods. ZUSAMMENFASSUNG - (Die Einfuehrung neuer Qualitaetsprodukte von Unternehmen: Marktnischenbesetzung versus Kannibalisierung der Nachfrage) Diese Studie analysiert das optimale Angebot von Guetern, die sich in der Qualitaet untescheiden. Wir betrachten ein Modell, in dem zwei insaessige Unternehmen neue Produkte mit unterschiedlicher Qualitaet in den Markt einfuehren koennen. Zudem koennen die Innovatoren entscheiden, ob ihre existierenden Produkte weiterhin im Markt angeboten oder abgezogen werden sollen. Wir zeigen, dass strategische Effekte und Kannibalisierungseffekte keine Diskriminierung zwischen den Konsumenten zulassen. Der Innovator zieht das existierende Produkt immer aus dem Markt, um einen erhoehten Preiswettbewerb und eine Kannibilisierung der eigenen Nachfrage zu vermeiden. Im Gegensatz zu horizontal differenzierten Maerkten, stellen sich Unternehmen in vertikal differenzierten Maerkten besser, eine geringere Produktvielfalt anzubieten.Asymmetric Firms, Cannibalization, Market Proliferation, New Product Introduction, Product Innovation, Vertical Product Differentiation.

Multiproduct Competition, Learning by Doing and Price-Cost Margins over the Product Life Cycle: Evidence from the DRAM Industry

In this study we specify and estimate a structural model of multiproduct firms for the semiconductor industry. In addition, we explicitly consider dynamics over the product life cycle. We find that these two aspects have important implications and provide evidence that (i) Spillover and Economies of Scale effects are lower for multiproduct firms than for single product firms, whereas Learning by Doing effects are slightly higher. We also find that firms follow an intertemporal output strategy. Furthermore, we provide evidence that, once multiproduct firms are introduced, firms behave as if in perfect competition. A single product specification leads to firms behaving even "softer" than Cournot players in the product market. We show that (ii) Learning by Doing, Economies of Scale, and Spillover effects vary over the product cycle. Learning by Doing effects are higher at the end of the life cycle when new production technologies are developed. Economies of Scale are increasing and become smaller (larger) over the life cycle for multiproduct (single product) firms. We specify a dynamic theoretical model and estimate a dynamic structural model by using quarterly firm-level output and costs data as well as industry prices for the Dynamic Random Access Memory (DRAM) industry from 1974 to 1996. ZUSAMMENFASSUNG - (Mehrproduktwettbewerb, Learning by Doing und Price-Cost Margins über den Produktlebenszyklus: Beweis aus der DRAM Industrie) In dieser Studie spezifizieren und schätzen wir ein strukturelles Modell von Mehrproduktunternehmen in der Halbleiterindustrie. Zusätzlich berücksichtigen wir explizit die Dynamik über den Produktlebenszyklus. Unsere Ergebnisse zeigen, daß diese beiden Aspekte gravierende Auswirkungen besitzen. Wir zeigen, daß (i) Spillovers und Skalenerträge für Mehrproduktunternehmen geringer sind als für Einzelproduktunternehmen, wogegen Lerneffekte geringfügig größer ausfallen. Unsere Ergebnisse bestätigen auch, daß Unternehmen eine intertemporale Outputstrategie verfolgen. Weiterhin wird gezeigt, daß sich Mehrproduktunternehmen im perfekten Wettbewerb befinden, wobei sich Einzelproduktunternehmen ähnlich wie Cournot Spieler verhalten. Wir zeigen, daß (ii) Lerneffekte, Skalenerträge und Spillovereffekte über den Produktlebenszyklus variieren. Lerneffekte sind am Ende des Produktlebenszyklus größer, wenn neue Produkttechnologien entwickelt werden. Skalenerträge sind zunehmend und nehmen für Mehrproduktunternehmen (Einzelproduktunternehmen) im Ausmaß zum Ende des Produktlebenszyklus ab (zu). Wir spezifizieren ein dynamisches theoretisches Modell und schätzen ein dynamisches strukturelles Modell unter Verwendung von vierteljährlichen Output- und Kostendaten auf Unternehmensebene, von der .Dynamic Random Access Memory. (DRAM) Industrie für den Zeitraum von 1974 bis 1996.Multiproduct Competition; Learning by Doing; Product Life Cycle; Economies of Scale; Spillovers; Semiconductor; Process Innovation

The Impact of Research Joint Ventures on Firm Performance: An Empirical Assessment

Research and Development Joint Ventures are based on cooperative agreements where firms share the costs and results of a particular research project. While theoretical analysis of research joint ventures on profits, R&D intensity, output and prices is more developed in the existing literature, few empirical investigations exist. This paper gives a first insight into the impact of research joint ventures on firms' profit margins. In addition, it investigates the degree to which different firm variables influence participation in research joint ventures (RJVs). For this purpose, 314 US research joint ventures registered from 1985 to 1992 are considered in the study. 2,923 unique cooperating firms and 13,186 noncooperating firms represent the basic sample. A descriptive comparison of cooperating and noncooperating firms finds that cooperating firms achieve a lower profit margin. In addition to this, larger firms are more likely to form RJV’s on average. Regression analyses show that two offsetting effects influence the profit margin and that the R&D investments of cooperating firms have a higher impact on profits. Beyond that, the firm size has a positive and significant influence on RJV participation. ZUSAMMENFASSUNG - (Die Auswirkung von Forschungs-Joint Ventures auf den Unternehmenserfolg: Eine empirische Beurteilung) Forschungs-Joint Ventures beruhen auf Kooperationsvereinbarungen, bei denen mehrere Unternehmen übereinkommen, Kosten und Nutzen eines bestimmten Forschungsprojektszu teilen. Während zahlreiche theoretische Untersuchungen über Forschungs-Joint Ventures und deren Auswirkungen auf die Gewinne, die F&E-Intensität, den Output und die Preise vorliegen, mangelt es an einschlägigen empirischen Analysen. In dieser empirische Untersuchung, die sich auf nordamerikanische Daten stützt, wird analysiert, welche Faktoren Unternehmen veranlassen sich an Forschungs-Joint Ventures zu beteiligen und wie sich dies auf ihre Umsatzrentabilität auswirkt. Einbezogen werden 314 nordamerikanische Forschungs-Joint Ventures, die in der Zeit von 1985 bis 1992 ihre Kooperation angemeldet haben. 2923 unterschiedliche kooperierende Unternehmen und 13186 nichtkooperierende Unternehmen stellen die Grundgesamtheit der Auswahl dar. Ein deskriptiver Vergleich der beiden Unternehmensgruppen zeigt, daß kooperierende Unternehmen eine niedrigere Umsatzrentabilität erzielen. Im Durchschnitt nehmen eher große Unternehmen an einem Forschungs-Joint Venture teil. Regresssionsanalysen zeigen, daß zwei gegeneinander wirkende Effekte die Umsatzrentabilität beeinflussen. Die F&E-Investitionen der kooperierenden Unternehmen besitzen einen größeren Einfluß auf die Profite. Darüber hinaus übt die Unternehmensgröße einen positiven und signifikanten Einfluß auf die Teilnahme an Forschungs-Joint Ventures aus.

Learning-by-Doing and Cannibalization Effects at Multi-Vintage Firms: Evidence from the Semiconductor Industry

Previous studies on the measurement of learning-by-doing emphasize the importance of accounting for multi-vintage effects having an impact on firms’ production costs through economies of scope. This study shows that accounting for cannibalization effects on the demand side is equally important for the adequate measurement of learning. Since multi-vintage firms anticipate the demand-side cannibalization effects in their production optimization, a previously omitted incentive to decrease production is captured having an impact on the measurement of learning by doing. We derive an empirical model from a dynamic oligopoly game of learning-by-doing and allow cannibalization effects to enter from the demand side. Using quarterly firm-level data for the dynamic random access memory semiconductor industry, we find support for cannibalization effects entering firms’ pricing relations resulting in higher estimated learning effects.Dynamic Random Access Memory; Dynamics; Economies of Scale; Learning by Doing; Multiproduct Firms; Product Life Cycle; Semiconductors

How Licensing Resolves Hold-Up: Evidence from a Dynamic Panel Data Model with Unobserved Heterogeneity

In a patent thicket licensing provides a mechanism to either avoid or resolve hold-up. Firms' R&D incentives will differ depending on how licensing is used. In this paper we study the choice between ex ante licensing to avoid hold-up and ex post licensing to resolve it. Building on a theoretical model of a patent portfolio race, firms' choices of licensing contracts are modelled. We derive several hypotheses from the model and find support for these using data from the semiconductor industry. The empirical results show that firms' relationships in product markets and technology space jointly determine the type of licensing contract chosen. Implications for the regulation of licensing are discussed. We estimate a dynamic panel data model with unobserved heterogeneity and a lagged dependent variable. A method suggested by Wooldridge (2005) is employed to estimate a random effects probit model using conditional maximum likelihood

Jostling for Advantage: Licensing and Entry into Patent Portfolio Races

Licensing in a patent thicket allows firms to either avoid or resolve hold-up. Firms' R&D incentives depend on whether they license ex ante or ex post. We develop a model of a patent portfolio race, which allows for endogenous R&D efforts, to study firms' choice between ex ante and ex post licensing. The model shows that firms' relationships in product markets and technology space jointly determine the type of licensing contract chosen. In particular, product market competitors are more likely to avoid patent portfolio races, since the threat of hold-up increases. On the other hand, more valuable technologies are more likely to give rise to patent portfolio races. We also discuss the welfare implications of these results

Does Licensing Resolve Hold Up in the Patent Thicket?

In a patent thicket licensing provides a mechanism to either avoid or resolve hold up. We study the choice between ex ante licensing to avoid hold up and ex post licensing to resolve it. Firms’ choice of licensing contract is studied in the context of a patent portfolio race. We show that high expected blocking leads to ex ante licensing while ex post licensing arises if expected blocking is low but realized blocking is high. Also, ex ante licensing reduces firms’ R&D incentives. A sample selection model of licensing is derived from the theoretical model. In this framework theoretical predictions on effects of blocking are tested with data from the semiconductor industry. We show that licensing helps firms to resolve blocking. However, licensing is not a cure all: it decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Using a treatment effects model we also confirm the prediction that ex ante licensing reduces the level of R&D investment

Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry

Merger control authorities may approve a merger based on a so-called 'efficiency defence'. An important aspect in clearing mergers is that the efficiencies need to be merger-specific. Joint ventures, and in particular research joint ventures (RJVs), may achieve comparable efficiencies possibly without the anti-competitive (market power) effects of mergers. We present evidence for the semiconductor industry that RJVs indeed represent viable alternatives to mergers. We empirically account for the endogenous formation of mergers and RJVs.

Jostling for Advantage: Licensing and Entry into Patent Portfolio Races

Licensing in a patent thicket allows firms to either avoid or resolve hold-up. Firms' R&D incentives depend on whether they license ex ante or ex post. We develop a model of a patent portfolio race, which allows for endogenous R&D efforts, to study firms' choice between ex ante and ex post licensing. The model shows that firms' relationships in product markets and technology space jointly determine the type of licensing contract chosen. In particular, product market competitors are more likely to avoid patent portfolio races, since the threat of hold-up increases. On the other hand, more valuable technologies are more likely to give rise to patent portfolio races. We also discuss the welfare implications of these results.hold-up problem; licensing; innovation; patent race; patent thicket; research joint ventures

Learning by doing and multiproduction effects over the life cycle: evidence from the semiconductor industry

"In this study we derive a structural econometric model of learning by doing with multiproduct competition from a dynamic oligopoly game. We show the importance to account for multiproduction effects through product differentiation when measuring learning by doing. Using quarterly firm-level data for the dynamic random access memory semiconductor industry, we provide evidence that accounting for multiproduction results in lower learning effects and firms behaving more competitive in the product market. We can confirm that firms follow intertemporal production plans for investing in future cost reductions. We also find that learning effects are higher at the beginning of the life cycle." (author's abstract)"Diese Studie untersucht das Ausmaß von Lerneffekten unter Berücksichtigung von Multiproduktionswettbewerb, basierend auf einem dynamischen Oligopol. Der empirische Teil der Untersuchung quantifiziert insbesondere den Einfluss der Produktdifferenzierung auf die Messung von Lerneffekten und Marktmacht. Auf der Grundlage von Quartalszahlen auf Unternehmensebene aus der dynamischen Speicherchipindustrie, erhalten wir das Ergebnis, dass die Berücksichtigung von Multiproduktwettbewerb in geringere Lerneffekte und einen kompetitiveren Produktmarkt resultiert. Weiterhin zeigen wir, dass Unternehmen dynamische Produktionspläne berücksichtigen, um zukünftige Kostenreduzierungen zu erzielen. Schließlich können wir bestätigen, dass die erzielten Lerneffekte zu Anfang des Produktlebenszyklus am höchsten sind." (Autorenreferat