Leadership Cycles

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new en-trant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research ltogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

Competition and Growth in Neo-Schumpeterian Models

We study the effect of product market competition on the incentives to innovate and the economy’s rate of growth in an endogenous growth model. We extend previous works in industrial organization by assuming that innovation is sequential and cumulative, and early endogenous growth models by accounting for the possibility that in each period many asymmetric firms (i.e., an endogenously determined number of successive innovators) are simultaneously active. We identify the price effect, the front loading of profits, and the productive efficiency effect associated with an increase in competitive pressure. The price effect reduces the incentives to innovate, but both the front loading of profits and the productive efficiency effect raise the incentives to innovate. We demonstrate circumstances in which the productive efficiency effect dominates the price effect. In these circumstances, the front loading of profits and the fact that the productive efficiency effect dominates the price effect compound to make the equilibrium rate of growth increase with the intensity of competition.

A signaling model of environmental overcompliance

We present a theory of unilateral regulatory overcompliance as a signaling device. Firms that have a competitive advantage in the use of a cleaner but more costly technology overcomply in order to signal to an imperfectly informed, benevolent government that compliance costs are low, thereby triggering tougher regulation. We identify the conditions under which such an overcompliance signaling equilibrium arises, showing that there may be over-overcompliance in that firms may overcomply even when tougher regulation is not socially desirable. We also discuss the differential implications of the signaling theory as compared to other theories of unilateral regulatory overcompliance

Optimal Patentability Requirements with Fragmented Property Rights

We study the effect of the fragmentation of intellectual property rights on optimal patent design. The major finding is that when several complementary innovative components must be assembled to operate a new technology, the patentability requirements should be stronger than in the case of stand-alone innovation. This reduces the fragmentation of intellectual property, which is socially costly. However, to preserve the incentives to innovate, if a patent is granted the strength of protection should be generally higher than in the stand-alone case.Intellectual Property Rights, Fragmentation, Patent Requirements

Bargaining with Noisy Communication

In this paper we show that in a bargaining situation the seller may not necessarily want to fully exploit communication possibilities. In the standard two-period bargaining model with one-sided incomplete information, the seller, who owns an indivisible good, makes offers which the buyer can either accept or reject. We ask whether the seller can profit from manipulating the communication mechanism by sending offers that reach the buyer with probability less than one (noisy communication). Noisy communication is a way to improve the seller's second period beliefs about the buyer's willingness to pay for the good and is therefore a way to "buy" commitment. We study the case of a discrete distribution of buyer's types and show that there exist equilibria with noisy communication when there are at least three different types of buyers

Exploiting rivals' strengths

Contracts that reference rivals' volumes (RRV contracts), such as exclusive dealing or market-share rebates, have been a long-standing concern in antitrust because of their possible exclusionary effects. We show, however, that it is more profitable to use these contracts to exploit rivals rather than to foreclose them. By optimally designing RRV contracts, a dominant firm may, indeed, obtain higher profits than if it were an unchallenged monopolist. In the most favorable cases, it can earn as much as if it could eliminate the competition and acquire the rivals' specific technological capabilities free of charge

Algorithmic collusion, genuine and spurious

We clarify the difference between the asynchronous pricing algorithms analyzed by Asker, Fershtman and Pakes (2021) and those considered in the previous literature. The difference lies in the way the algorithms explore: randomly or mechanically. We reaffirm that with random exploration, asynchronous pricing algorithms learn genuinely collusive strategies

Patent Protection for Compex Technologies

We analyze patent protection with sequential and complementary innovation. We argue that in these cases the classic Nordhaus trade-off between innovation and static monopoly distortions is different from the case of isolated innovations. We parametrize the degree of innovation sequentiality and complementarity and show that the optimal level of patent protection increases with both. We also address the issue of the optimal division of profit among different innovators