internal and external effects of r d subsidies and fiscal incentives empirical evidence using spatial dynamic panel models abstract most studies evaluating the macroeconomic effects of financial support policies on business funded r d use econometric methods that do not consider the existence of spatial effects and generate biased estimates in this paper we discus and address this problem using spatial dynamic panel data methods this allow us to provide new insights on the internal in country and external out of country effects of both research and development r d subsidies and fiscal incentives we use a database of 25 oecd countries for the period 1990 2009 in relation to internal effects for both instruments we find a non linear relationship between their effect on private r d and their level suggesting the possibility of leveraging and crowding out effects we also find a substitution effect between the r d subsidies and fiscal incentives implemented within a country concerning the spatial component we find evidence of positive spatial spillovers among private r d investments however our results suggest the existence of competition substitution effects between national r d policies

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

tying as a response to demand uncertainty this article examines requirements tying of a competitively supplied good to a monopolized good it expands the set of market conditions in which this instrument is known to be profitable with heterogeneous privately informed buyers a firm can profit by tying two goods even when demands for the goods are price independent providing the demands are stochastically dependent we investigate the profitability of tying as a response to stochastic demand as well as the effects of tying on prices and the extent of the market served

resale price maintenance and collusion the article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude we analyze the scope for collusion with and without resale price maintenance rpm when retailers observe local shocks on demand or retail costs in the absence of rpm retail prices react to retailers information and deviations from collusive behavior are thus difficult to detect by eliminating retail price flexibility rpm facilitates the detection of deviations but reduces profits and thus increases the short run gains from a deviation overall rpm can facilitate collusion and reduce total welfare when firms adopt it

backward stealing and forward manipulation in the wto abstract motivated by the structure of wto negotiations we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most favored nation mfn principle we identify backward stealing and forward manipulation problems that arise when governments bargain under the mfn principle in a sequential fashion we show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed we identify the wto nullification or impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems in this way we suggest that wto rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process

democratic states and international disputes a growing literature in international relations concludes that democratic states pursue distinctive foreign policies specifically democracies do not engage each other in war and only rarely engage each other in serious disputes short of war scholars have offered three basic explanations to support these findings each of the three invokes a different explanatory variable norms checks and balances and trade none of the three however provides a convincing explanation of the peace that is said to prevail between democratic polities the distinction between norms and interests is unclear substitutes for checks and balances exists in nondemocracies and trade can deter conflict only under restrictive conditions

black hole tariffs and endogenous policy theory political economy in general equilibrium preface acknowledgments list of results 1 a preview of the results 2 endogenous policy theory a diagrammatic approach part i endogenous policy theory with specific factors the theory of industry tariffs in partial equilibrium 3 the probabilistic voting model of political efficiency and powerless politicians 4 endogenous lobbying theory and the contribution specialization theorem 5 endogenous tariff theory 6 the power function model of endogenous industry lobbying 7 three simple tests of the stolper samuelson theorem 8 the invisible foot and the waste of nations lawyers as negative externalities part ii endogenous policy theory in general equilibrium a long run theory of national tariff levels 9 the 2 x 2 x 2 x 2 model of endogenous redistribution theory 10 a prisoner s dilemma theory of endogenous protection the leontief model 11 the compensation effect and the multiple equilibrium trap 12 increasing returns to politics and factor endowments economic development and brazilian vitality versus the indian disease 13 endogenous protection in the united states 1900 88 14 a cobb douglas model 15 black hole tariffs 16 the endowment effect cross national evidence on endogenous tariffs part ii postscript 17 the senile industry argument for protection 18 optimal obfuscation and the theory of the second worst the politically efficient policy mathematical appendices references author index subject index

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

nonlinear pricing and exclusion ii must stock products dominant firms often are unavoidable trading partners buyers may consider switching a fraction of their requirements to rival products but that fraction is highly uncertain in rapidly evolving industries nonlinear pricing serves to adjust the competitive pressure placed on rival firms depending on the joint distribution of the buyer willingness to pay for the rival s good and the share of contestable demand concave price quantity schedules erect barriers to entry convex parts in schedules introduce barriers to expansion dominant firms use all units discounts to create high entry barriers for rival firms with intermediate levels of contestable demand

incentives for unaware agents the paper introduces the problem of unawareness into principalagent theory and discusses optimal incentive contracts when the agent may be unaware of her action space depending on the agent s default behavior it can be optimal for the principal to propose an incomplete contract that keeps the agent unaware or a complete contract the key tradeoff is that of enlarging the agent s choice set versus adding costly incentive constraints if agents differ in their unawareness optimal contracts show a self reinforcing pattern if there are few unaware agents in the economy optimal contracts promote awareness if unawareness is wide spread optimal contracts shroud the contracting environment thus keeping the agent unaware

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

the value of embedded real options evidence from consumer automobile lease contracts under the common assumption of constant interest rates we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value furthermore our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand alone value of the lease end purchase option is on average about 16 of the market value of underlying used vehicles or about 1 462 per contract finally we examine the sensitivity of our option value estimates to model parameters and default risk recent years have witnessed a dramatic growth in the leasing of automobiles for instance overall industry sales data indicate that about a third of the new vehicles and trucks sold in the united states are leased hendel and lizzeri 2002 and miller 1995 and the federal reserve board survey of family finances reports that the use of leased vehicles by individuals nonbusiness consumers has risen from 2 9 to 5 8 over the 1992 to 2001 period azicorbe kennickell and moore 2003 consumer automobile lease contracts for new cars often include two embedded options that are not associated with a typical debt contract the first is a cancellation option that allows the lessee to terminate the lease early the second is a european call option which gives the lessee the right but not the obligation to purchase the leased used vehicle at the scheduled termination of the lease at a predetermined exercise price both of these options are simple examples of real options because the asset underlying these options is a used car that is a real asset however these options constitute a special case of real options since they are embedded in the lease contract which is a financial credit instrument theoretical analyses of lease contracts show that the cancellation option is quite valuable schallheim and mcconnell 1985 with respect to the purchase option hendel and lizzeri 2002 argue that they can play an important role in

exclusionary pricing in markets with interdependent demands in this paper i use a simple model to study the competitive effects of exclusionary pricing involving two markets related by a positive demand externality it is shown that below cost pricing on one of these markets can allow an incumbent firm to exclude from both markets a more efficient rival which does not have a customer base yet however when exclusion occurs it is always socially optimal in addition under some circumstances there is inefficient entry the entrant wins both markets while the social optimum would require the incumbent to win them

golden cages for showy birds optimal switching costs in labor contracts under what circumstances do workers sign contracts with high quitting penalties our answer points to market transparency when the worker s performance is privately observed by the incumbent 4rm alternative employers face an adverse selection problem as a result e7cient separations can only take place through involuntary layo8s and there is no role for quitting fees in contrast when performance is public quitting fees are useful devices to appropriate the surplus from workers reallocation separations are amicable and take the form of quitting after downwardly renegotiating the fees qualitative features of contracts are independent of the distribution of ex post bargaining power the impact of switching costs on total welfare and its distribution depends on the degree of market transparency and the ex ante distribution of market power c

exclusionary vertical contracts and product market competition this article considers whether a monopolist is able to deter more efficient entrants through contracting with buyers in the antitrust literature the chicago school s stand is that such contracts cannot be anticompetitive hence vertical contracts should be accorded per se legal status in a four stage game with the following features 1 the incumbent enjoys a first mover advantage 2 the entrant must incur some sunk cost to enter the market and 3 entry is uncertain the author shows that vertical contracts can be anticompetitive if there exists product market competition thus the author advocates caution in treating all contracts as per se legal a three factor repeated measures experiment tested the effect of leadership style charismatic structuring and considerate on performance improvement on a manufacturing task over four trials findings from a repeated measures multivariate analysis of variance indicated that individual exposed to considerate leadership had superior initial performance but that this difference faded over time further analysis indicated that self efficacy fully mediated the relationship between leadership style and performance copyright 1999 by university of chicago press

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

an equilibrium selection theory of monopolization we develop a duopoly model in which firms compete for the market e g investing in process innovation or product development as well as in the market e g setting quantities or prices competition for the market generates multiple equilibria that differ in the firms investment levels relative size and profitability we show that monopolization that affects competition in the market can act as an equilibrium selection device in competition for the market in particular it eliminates equilibria that are undesirable for the monopolizing firm while not generating new equilibria this result complicates the task of determining whether a firm s dominance in a given market is the result of fair competition or unlawful monopolization we discuss a number of implications for antitrust policy and litigation and illustrate these by means of two well known antitrust cases

collusion exclusion and inclusion in random order bargaining this paper examines the profitability of three types of integration in a cooperative game solved by a random order value e g the shapley value collusion between players i and j is a contract merging their resources in the hands of one of them say i this contract can be represented as a combination of exclusion which lets i exclude j s resource but not use it himself and inclusion which lets i use j s resource but not exclude j from it this representation yields a third difference condition on the characteristic function that determines the profitability of collusion generalizing existing results for specific games namely collusion is profitable unprofitable when the complementarity of the colluding players is reduced increased by other players

loyalty discounts and price cost tests abstract we analyze by means of a formal economic model the use of the discount attribution test to assess the competitive effects of loyalty discounts the discount attribution test is a variant of the price cost test where the discount is attributed only to the share of total demand that is regarded as effectively contestable in the model a dominant firm enjoys a competitive advantage over its rivals and uses market share discounts to boost the demand for its own products in this framework we show that the attribution test is misleading or at best completely uninformative our results cast doubts on the applicability of price cost tests to loyalty discount cases

the effects of public r d subsidies on firms innovation activities the case of eastern germany this study analyzes the effects of public r d policy schemes on the innovation activities of firms in eastern germany the main question in this context is whether public funds stimulate r d activities or simply crowd out privately financed r d empirically we investigate the average causal effects of all public r d schemes in eastern germany using a nonparametric matching approach compared to the case in which no public financial means are provided it turns out that firms increase their innovation activities by about four percentage points

exclusive dealing investment promotion may facilitate inefficient foreclosure this paper studies a model whereby exclusive dealing ed can both promote investment and foreclose a more efficient supplier since ed promotes the incumbent seller s investment the seller and the buyer realize a greater surplus from bilateral trade under exclusivity hence the parties involved may sign an ed contract that excludes a more efficient entrant in circumstances where ed would not arise absent investment the paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ed

exclusionary practices and technological competition this paper examines the effects of exclusionary practices on the process of technological change modeled as a sequence of innovations the winner of an early innovation may be able to take possibly costly actions that effectively exclude its rivals from competition for subsequent innovations the possibility of exclusion can change the equilibrium time pattern of investments in research from that of the case of no exclusion conditions that make such a change most likely are also conditions under which such a change is most likely to reduce the efficiency of the allocation of resources to technological change many people believe that the possession of unchallenged economic power deadens initiative discourages thrift and depresses energy that immunity from competition is a narcotic and rivalry a stimulant to industrial progress judge learned hand in the alcoa decision in analyzing such business strategy ex visu a given point in time the economist sees restrictions which seem to him synonymous with loss of opportunities to produce he does not see that restrictions of this type are in the conditions of the perennial gale of creative destruction often unavoidable incidents of a long run process of expansion which they protect rather than impede

is public r d a complement or substitute for private r d a review of the econometric evidence is public r d spending complementary and thus additional to private r d spending or does it substitute for and tend to crowd out private r d conflicting answers are given to this question we survey the body of available econometric evidence accumulated over the past 35 years a framework for analysis of the problem is developed to help organize and summarize the findings of econometric studies based on time series and cross section data from various levels of aggregation laboratory firm industry country the findings overall are ambivalent and the existing literature as a whole is subject to the criticism that the nature of the experiment s that the investigators envisage is not adequately specified we conclude by offering suggestions for improving future empirical research on this issue

innovation and industry evolution the theoretical literature on innovation has been concerned with a single innovation produced by a number of identical agents by contrast we consider a market in which one firm is the current incumbent while the remaining firms are challengers moreover we consider a sequence of innovations so that success does not imply that the successful firm reaps monopoly profits forever after but only until the next better innovation is developed we begin with a fully optimizing behavioral model and derive the equivalent of the schumpeterian process of creative destruction that is a firm enjoys temporary monopoly power but is soon overthrown by a more inventive challenger the essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers goods the new methods of production or transportation the new markets the new forms of industrial organization that capitalist enterprise creates schumpeter 1942 pp 82 83

presidential address antitrust restrictions on single firm strategies this article offers an overview of selected developments in the law and economics of antitrust regulation of single firm strategies the strategy generating the most cases historically is resale price maintenance here the law has moved sharply in both canada and the u s towards more solid economic foundations yet a gap between the law and economics remains the economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature the law on a second strategy predatory pricing represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing the remaining single firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market i review with application to cases the two most basic questions concerning exclusionary strategies are exclusionary anticompetitive contracts ever entered into voluntarily by market participants on the other hand is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive cette allocution presidentielle a l association canadienne d economique presente une vue d ensemble des developpements dans le droit et l economie de la reglementation antitrust sur les strategies d une firme unique la loi sur la strategie qui genere historiquement le plus de cas le maintien du prix de revente a change dramatiquement au canada et aux etats unis et derive vers une politique qui a des assises economiques solides mais il reste un ecart entre le droit et l economie on reexamine l economie du maintien du prix de revente a l aide d un cadre d analyse qui est a la fois plus simple et plus general que ce qui existe dans la litterature specialisee la loi pour ce qui est d une seconde strategie prix d eviction est a mon avis une grande reussite pour la science economique malgre l absence d une seule theorie du prix d eviction generalement acceptee un troisieme ensemble de strategies concerne l exclusion de ses rivaux d un marche par la firme dominante l auteur reexamine avec un recours extensif aux cas les deux questions de base pour ce qui est des strategies d exclusion est ce que les participants sur un marche entrent jamais volontairement dans un arrangement contractuel qui exclut et est anticoncurrentiel d autre part est ce que la saisie complete ou substantielle d un marche par des man uvres d exclusion est necessairement anticoncurrentielle

r d and subsidies at the firm level an application of parametric and semi parametric two step selection models this paper analyzes the effects of public r d subsidies on r d expenditure in the german manufacturing sector the focus is on the question whether public r d funding stimulates or crowds out private investment cross sectional data at the firm level is used by apllying parametric and semiparametric selection models it turns out that public funding increases firms r d expenditure altough the magnitude of the treatment effect depends on the assumpions imposed by the particular selection model

rebates as incentives to exclusivity we show how rebates or fidelity discounts that take the form of lump sum payments made to retailers can be used by an incumbent manufacturer to achieve exclusivity and to deter the entry of a more efficient rival the results which hold whatever the degree of differentiation between retailers and whatever the cost advantage of the entrant are found despite minimizing asymmetries that may favour the incumbent as such there is no need to introduce buyers disorganization discriminatory offers economies of scale non coincident markets or liquidated damages to find that exclusivity can lead to anti competitive effects

powerful pacifists democratic states and war democracies are less likely to fight wars with each other they are also more likely to prevail in wars with autocratic states i offer an explanation of this syndrome of powerful pacifism drawn from the microeconomic theory of the state state rent seeking creates an imperialist bias in a country s foreign policy this bias is smallest in democracies where the costs to society of controlling the state are relatively low and greatest in autocracies where the costs are higher as a result of this bias autocracies will be more expansionist and in turn war prone in their relations with each other where the absence of this imperialist bias is manifest the relative pacifism of democracies appears in addition democracies constrained by their societies from earning rents will devote greater absolute resources to security enjoy greater societal support for their policies and tend to form overwhelming countercoalitions against expansionist autocracies it follows that democracies will be more likely to win wars

naked exclusion efficient breach and downstream competition previous papers by eric b rasmusen j mark ramseyer and john s wiley jr 1991 and ilya r segal and michael d whinston 2000 argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers we first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages we then show however that exclusive contracts can inefficiently deter entry if buyers are downstream competitors even in the absence of scale economies and even if breach is possible

exclusive quality exclusive quality in the case of vertically differentiated products bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a high quality rival indeed because of differentiation the incumbent s inferior product is not eliminated upon entry due to the resulting competitive pressure a retailer who considers rejecting the exclusivity contract expects to earn much less than the incumbent s monopoly rents thus in equilibrium the incumbent can always offer high enough an upfront payment to induce all retailers to sign the contract and achieve exclusion this is true under linear pricing for intermediate levels of entry costs and with two part tariffs even in the absence of entry costs copyright 2010 the author the journal of industrial economics 2010 blackwell publishing ltd and the editorial board of the journal of industrial economics

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

dynamic common agency a general model of dynamic common agency with symmetric information is considered the set of truthful markov perfect equilibrium payoffs is characterized and the efficiency properties of the equilibria are established a condition for the uniqueness of equilibrium payoffs is derived for the static and the dynamic game the payoff is unique if and only if the payoff of each principal coincides with his marginal contribution to the social value of the game the dynamic model is applied to a game of agenda setting

contracts and externalities how things fall apart a single principal interacts with several agents offering them contracts the crucial assumption of this paper is that the outside option payoffs of the agents depend positively on how many uncontracted or free agents there are we study how such a principal unwelcome though he may be approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out two variants are considered when the principal cannot re approach agents there is a unique equilibrium in which contract provision is split up into two phases in phase 1 simultaneousoffers at good though varying terms are made to a number of agents in phase 2 offers must be made sequentially and their values are discontinuously lower they are close to the very lowest of all the outside options when the principal can repeatedly approach the same agent there is a multiplicity of equilibria in some of these the agents have the power to force delay they can hold off the principal s overtures temporarily but they must succumb in finite time in both models despite beingable to coordinate their actions agents cannot resist an invasion by the principal and hold to their best payoff it is in this sense that things eventually fall apart

naked exclusion an experimental study of contracts with externalities this paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts we use the strategic environment described by rasmusen ramseyer and wiley 1991 and segal and whinston 2000 where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent when discrimination is impossible the game resembles a stag hunt coordination game in which the buyers payoffs are endogenously chosen by the incumbent seller exclusion occurs when the buyers fail to coordinate on their preferred equilibrium two way non binding pre play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller when discrimination and communication are possible the exclusion rate rises divide and conquer strategies are observed more frequently when buyers can communicate with each other exclusion rates are significantly higher when the buyers payoffs are endogenously chosen rather than exogenously given finally secret offers are shown to decrease the incumbent s power to profitably exclude

the relationship between r d collaboration subsidies and r d performance empirical evidence from finland and germany this study focuses on the impact of innovation policies and r d collaboration in germany and finland we consider collaboration and subsidies as heterogeneous treatments and perform an econometric matching to analyze r d and patent activity at the firm level in general we find that collaboration has positive effects in germany subsidies for individual research do neither exhibit a significant impact on r d nor on patenting but the innovative performance could be improved by additional incentives for collaboration for finnish companies public funding is an important source of finance for r d without subsidies recipients would show less r d and patenting activity whilst those firms not receiving subsidies would perform significantly better if they were publicly funded copyright 2007 john wiley sons ltd

contractual signaling relationship specific investment and exclusive agreements i analyze a model of hold up with asymmetric information at the contracting stage the asymmetry of information concerns the value of trade with external parties i show that contractual signaling and efficiency of investment can conflict if only quantity is contractible this conflict generates inefficient equilibria in terms of investment contracting on exclusivity in addition to quantity resolves the conflict and consequently eliminates the inefficiency of investment

career concerns matching and optimal disclosure policy raiders may suffer from information disadvantage since the current employer is often better informed about his workers quality when workers have career concerns and matching influences productivity the initial employer can strategically disclose information to influence incentives and matching efficiency long term complete contracts induce full disclosure when raiders are perfectly competitive the optimal short term contract induces full disclosure if raiders are perfectly competitive and the workers are risk neutral and are not liquidity constrained these conditions are not only sufficient but also almost necessary for full disclosure partial disclosure may be optimal if any of these conditions is relaxed

naked exclusion with minimum share requirements we consider a class of contracts in which buyers commit to giving a seller some minimum share of their total purchases we show that such contracts can be used by an incumbent seller to reduce the probability of entry by a rival seller when the incumbent can commit to its selling price as part of the contract we further show that such contracts can be profitable for the incumbent even when exclusive dealing would not be and even when buyers can coordinate their accept or reject decisions the average price paid by the buyers will be higher and welfare will be lower whether or not the incumbent s exclusionary conduct turns out to be successful in preventing entry

domestic opposition and signaling in international crises this article explores the effect of domestic political competition on the escalation of international crises it combines an incomplete information model of crisis bargaining with a simple model of two party electoral choice one state has two strategic actors a government and an opposition party both of which declare openly whether they support the use of force to alter the status quo the rival state updates its beliefs and selects its strategy in response to both signals the parties payoffs depend upon a retrospective evaluation by the domestic electorate the model shows that the inclusion of a strategic opposition party decreases the ex ante probability of war by helping to reveal information about the state s preferences this finding has important implications for research on democracy and international conflict since it suggests a mechanism through which democratic states can overcome informational asymmetries which have been identified as a central obstacle to negotiation

the role of potential competition in industrial organization potential competition has been recognized as a mechanism to control the exploitation of market power at least since the work of j b clark 1902 but it was not until 50 years later that economists most notably joe bain and paolo sylos labini refocused attention on the idea with inputs from the theories of imperfect competition optimal control and dynamic games their work evolved into ever more sophisticated models of the reactions of existing competitors to the threat of new competition although the most appropriate models of competitive interaction are those which begin with a specific industry a number of theories have been proposed which attempt to develop more general conclusions my purpose in this paper is to develop an understanding of the strengths and limitations of these alternative theories by examining the available theoretical empirical and institutional knowledge rather than attempt the sisyphean task of recounting every model which relates conditions of entry and market performance i have partitioned the analysis into four major schools of thought according to their most central propositions these are the traditional model of limit pricing dynamic limit pricing the theory of contestable markets and the market efficiency model traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult dynamic limit pricing is similar but emphasizes that markets can only be temporarily protected from entry contestability theory in its pure form asserts that potential competition is as effective as actual competition in controlling market performance the efficient markets hypothesis broadly interpreted states that markets are workably competitive and that the market structure reflects differential efficiency not strategic behavior while one can construct many other hypotheses about potential competition these classifications

exclusive dealing as a barrier to entry evidence from automobiles exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market we ask whether such contracts may act as an entry barrier and provide an empirical analysis of the european car market we first estimate a demand model with product and spatial differentiation and quantify consumers valuations for dealer proximity and dealer exclusivity we then perform policy counterfactuals to assess the profit incentives and possible entry deterring effects of exclusive dealing we find that there are no unilateral incentives to maintain exclusive dealing but there is a collective incentive for the industry as a whole furthermore a ban on exclusive dealing would raise the smaller entrants market share but more importantly consumers would gain not so much because of increased price competition but rather because of the increased spatial availability which compensates for the demand inefficiency from a loss of dealer exclusivity

the commitment value of contracts under dynamic renegotiation we examine why different renegotiation processes can lead to opposite results regarding the commitment value of third party contracts in the presence of asymmetric information our main result is that a contract loses all strategic value if renegotiation is allowed during the production stage rather than only before production begins this result casts serious doubt on the relevance of previous findings which emphasize how contracts can have commitment value even in the presence of renegotiation our analysis can also be used to understand the differences between many of the results in the renegotiation literature

the impact of r d subsidies during the crisis this study investigates the impact of r d subsidies on r d investment during the past financial crisis we conduct a treatment effects analysis and show that r d subsidies increased r d spending among subsidized small and medium sized firms in germany during the crisis years in the first crisis year the additionality effect induced by public support was however smaller than in other years this temporary decrease may be caused by an altered innovation subsidy scheme in crisis years or by a different innovation investment behavior of the subsidy recipients we do not find support for the countercyclical innovation subsidy scheme having caused the smaller additionality effect and conclude that it is likely to be driven by subsidy recipient behavior

extracting interaction created surplus abstract this paper demonstrates that the economic surplus which agents produce in bilateral interactions is extractable by an outside party having sufficient initial resources the third party achieves this outcome using a class of exclusive interaction contracts a basic extractability result is shown to be robust to several extensions competition among outside parties multiplicity of interacting agents and a dynamic extension with repeated opportunities to interact finally some connections with the economic intermediation literature are drawn journal of economic literature classification number c79

persistent court corruption levels of court corruption differ widely across the world to give just one example in a recent survey of firms in transition economies the proportion of respondents who answered that firms in their line of business never have to make additional payments to deal with the courts ranged from 86 8 in hungary to just 37 2 in albania a second notable feature of court corruption is its persistence over time in spite of almost universal condemnation of the phenomenon and frequent government anti corruption campaigns this article presents a simple model that explains both the variation and persistence of corruption the main argument is as follows a major role of the legal system is to provide incentives to individuals to take or abstain from certain actions this is true of regulation criminal law contract law and tort law alike however when courts are corrupt the incentive effect provided by court enforced fines and other penalties is reduced to maintain incentives higher penalties are required but these higher penalties in turn raise the bribes that court officials can extract since the stakes to winning a court case are now higher finally higher bribes make court employment more attractive to dishonest individuals which raises the corruptibility of the court loosely speaking then corruption and penalties are complements corruption necessitates higher penalties while higher penalties engender corruption the feedback effect just described gives rise to the possibility of multiple equilibria that is apparently similar countries can have very different levels of court corruption one country may have a relatively honest pool of court officials and a low level of penalties while a second country may have the opposite moreover if a country in a high corruption equilibrium attempts to shift to using smaller penalties the immediate effect is a fall in the incentives provided by the legal system as such a country can find itself stuck in a high corruption equilibrium

inventorship and authorship as attribution rights an enquiry into the economics of scientific credit abstract authorship and inventorship are attribution rights upon which individual scientists build their reputation and career social and legal norms concerning their distribution within research teams are currently criticized for failing to inform third parties on individual contributions we examine the case of teams engaged in the double disclosure of their research results through both publications and patents and model the negotiation process taking place between junior or female team members and the senior male ones we suggest that the former may give up inventorship in order to secure authorship even when entitled to the both based on a sample of 680 patent publication pairs related sets of patents and publications we show that very frequently one or more authors of a publication do not appear as inventors of a related patent this is less likely to happen for first and last authors which is in accordance both with our model and the prevailing legal norms on inventorship however the probability of exclusion from inventorship also declines with seniority and increases for women which is compatible with our model only

customer coalitions monopoly price discrimination and generic entry deterrence abstract this paper analyzes the interplay between a profit maximizing monopolist and a set of consumers who are able to form coalitions that bargain with the monopolist and or integrate into production we show that the monopolist will deter the formation of these countervailing coalitions through strategic selection of generic limit price offers to each consumer these limit prices are derived as subgame perfect equilibria in two alternative models of customer monopoly interplay in both models price discrimination emerges in environments wherein it has previously been considered unprofitable welfare analysis of the equilibria demonstrates the procompetitive effects of potential customer coalitions and generally provides an efficiency based motivation for a government ban on price discrimination

do the effects of r d tax credits vary across industries a meta regression analysis this paper presents a survey of the micro econometric literature on the effects of r d tax credits on firms innovation activities we focus on one specific aspect that has not received sufficient attention in previous research the sectoral dimension our meta regression analysis mra sets up a new database collecting a large number of firm level studies on the effects of r d tax credits and investigates the factors that may explain differences in the estimated effects that are reported in the literature the main result of the mra analysis is indeed that sectors matter specifically the additionality effect of r d tax credits is on average stronger for smes firms in the service sectors and firms in low tech sectors in countries with an incremental scheme the paper proposes a simple framework to investigate why the innovation and economic effects of r d tax credits vary across sectors and points out new directions and hypotheses for future research

competition with exclusive contracts and market share discounts we analyze firms that compete by means of exclusive contracts and market share discounts conditional on the seller s share of customers total purchases with incomplete information about demand firms have a unilateral incentive to use these contractual arrangements to better extract buyers informational rents however exclusive contracts intensify competition thus reducing prices and profits and in all pareto undominated equilibria increasing welfare market share discounts by contrast produce a double marginalization effect that leads to higher prices and harms buyers we discuss the implications of these results for competition policy jel d43 d83 d86 k21 l14 l42 in this paper we study firms that compete by means of exclusive contracts or mar ket share discounts i e discounts that depend on the seller s share of a customer s total purchases these are common yet seldom studied forms of competition the literature has mainly focused on incumbents use of exclusive contracts or marketshare discounts to deter new entrants whilst paying less attention to competitors deploying similar pricing strategies we show that exclusive contracts intensify competition reducing equilibrium prices whereas market share discounts have a double marginalization effect and hence result in higher prices these findings have a bearing on the current lively policy debate 1 fueled by the fact that antitrust authorities view competition by means of exclusive contracts or marketshare discounts with some suspicion to say the least the authorities main concern appears to be that a dominant firm can use exclusivity or market share discounts to eliminate not only potential competitors but also existing ones a prime instance of this is the case of intel intel whose main competitor amd has been operating for years in the microchip sector offered electronics manufacturers discounts that depended on their buying a minimum share of their total purchases of microchips from intel some customers to qualify for the discount had to opt for an exclusive supply contract that

divided government and u s trade policy theory and evidence if different parties control the u s congress and white house the united states may maintain higher import protection than otherwise this proposition follows from a distributive politics model in which congress can choose to delegate trade policymaking to the president when the congressional majority party faces a president of the other party the former has an incentive to delegate to but to constrain the president by requiring congressional approval of trade proposals by up or down vote this constraint forces the president to provide higher protection in order to assemble a congressional majority evidence confirms that 1 the institutional constraints placed on the president s trade policymaking authority are strengthened in times of divided government and loosened under unified government and 2 u s trade policy was significantly more protectionist under divided than under unified government during the period 1949 90

the right of first offer abstract this paper examines the right of first offer which requires a seller to bargain with the contracted buyer before subsequent buyers arrive the contract also prevents the seller from selling his unique asset to subsequent buyers at a price below what he offers to the contracted buyer the right of first offer makes the seller less aggressive in bargaining with the contracted buyer who is privately informed about his valuation such a contract can reduce inter temporal misallocation in which a subsequent buyer gets the asset when the contracted buyer has higher valuation but it also may cause misallocation in which the contracted buyer gets the asset when subsequent buyers have higher valuations overall whether the right of first offer can increase the joint surplus for the seller and the contracted buyer as well as social welfare depends on the contracted buyer s renegotiation power and the distribution of the buyers valuations this paper also discusses the differences between the right of first offer and the most favored customer clause

exclusive dealing before bork and beyond abstractantitrust scholars have come to accept the basic ideas about exclusive dealing that bork articulated in the antitrust paradox indeed they have even extended his list of reasons why exclusive dealing can promote economic efficiency yet they have also taken up his challenge to explain when exclusive dealing might possibly cause harm and have modeled a variety of special cases where it does some albeit not all of these are sufficiently plausible to be useful to prosecutors and judges

on the economic efficiency of liquidated damages abstract recently aghion and bolton american economic review 1987 77 388 401 have shown that liquidated damages can serve as a barrier to entry and may therefore be socially harmful in this paper i show that liquidated damages remain excessive and continue to serve as a barrier to entry even in the presence of relationship specific investment but may nevertheless have an overall positive effect on welfare

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

exclusive contracts foster relationship specific investment exclusive contracts prohibit one or both parties from trading with anyone else contrary to earlier findings we show that investments that are specific to the contracting parties may be encouraged by exclusivity results depend on the nature of investments and the bargaining solution the major part of the analysis shows that exclusivity deals designed to assure the supply of essential inputs promote investment infinite penalties for breach even if ex post renegotiable may result in excessive investment in which case a positive but finite damage payment yields the first best outcome

novelty and disclosure in patent law the stringency of the novelty requirement in patent law affects the pace of innovation because it affects the amount of technical information that is disclosed among firms it also affects ex ante profitability of research we compare weak and strong novelty requirements from the standpoint of social efficiency we ask how our answer depends on the rule that determines which firm gets a patent when two firms have patents pending on the same technology the possible rules are first to invent which applies in the u s and first to file which applies everywhere else

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

the rise of economics in competition policy a canadian perspective competition policy in canada and elsewhere has changed remarkably over the last 50 yearsin large measure due to advances in economics in this article we trace the impact of developments in industrial organization on the three central areas of competition policy cartels single firm conduct and mergers we focus on canadian competition policy but draw comparisons with developments in the united states and europe

strategic effects of three part tariffs under oligopoly the distinct element of a three part tariff 3pt compared with linear pricing lp or a two part tariff is its quantity target within which the marginal price is zero this quantity target instrument enriches the firm s strategy set in dictating the competition to a specific level even in the absence of a usual price discrimination motive with general differentiated linear demands the competitive effect of a 3pt in contrast to lp depends on the degree of substitutability between products competition is intensified when two products are more differentiated yet softened when two products are more substitutable

endogenous games and mechanisms side payments among players we characterize the outcomes of games when players may make binding offers of strategy contingent side payments before the game is played this does not always lead to efficient outcomes despite complete information and costless contracting the characterizations are illustrated in a series of examples including voluntary contribution public good games cournot and bertrand oligopoly principal agent problems and commons games among others

the role of exclusive contracts in facilitating market transactions vertical contracts between a buyer and a seller often contain exclusivity provisions that restrict their ability to transact with third parties in the future in this paper we develop a matching model in which matched agents first decide whether or not to adopt exclusivity provisions and then bargain over the price of a good in the presence of private information we show that by making disagreement more costly exclusivity provisions reduce the risk of inefficient bargaining breakdowns and that agents find it optimal to adopt exclusive contracts in thin markets but not in thick markets for intermediate levels of market thickness all agents matched and unmatched would be better off if courts did not enforce the exclusivity provisions

the timing of mergers along the production chain capital structure and risk dynamics abstract i demonstrate that the timing of vertical mergers is generally dependent on industry characteristics my predictions are consistent with empirically observed patterns of vertical mergers i show that merger activity during economic upturns tends to be motivated by operating efficiencies while merger activity during economic downturns tends to occur as a means of keeping production chain operational mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions the pricing framework implies that a vertical merger decision usually reduces risk during two different economic states

the effectiveness of r d subsidies a meta regression analysis of the evaluation literature widespread and increasing public subsidy for research and development r d has given rise to a large and growing number of evaluation studies while economic theory identifies market failures that justify public support theory also suggests reasons why returns might be disappointing similarly the empirical literature investigated 52 micro level studies published since 2000 on either input or output r d reports a wide range of findings the lack of conclusiveness both of theory and of the evaluation literature motivate this meta regression analysis mra this study contributes to policy debate by identifying a representative subsidy effect after controlling for publication selection bias and for a wide range of sample and study heterogeneities mra findings reject crowding out of private investment by public subsidy but reveal no evidence of substantial additionality in addition among the research practices explaining the heterogeneous effects reported in this literature those related to the treatment of unobservable firm heterogeneity are particularly important

do research subsidies crowd out private r d of large firms evidence from european framework programmes abstract we evaluate whether public research subsidies are complements or substitutes to the private r d spending of large firms combining data on the ec s three most recent framework programmes fp6 fp7 and h2020 with data on the world s largest research companies we use matching and difference in difference estimation to compute the causal impact of subsidies on private r d spending while on average subsidies have not led to increased private research budgets we identify policy relevant heterogeneities finding that subsidies increased own r d for smaller firms and projects as well as more r d intensive firms we also find that horizon 2020 successfully stimulated firms private r d spending while its predecessors did not

strategic ex ante contracts rent extraction and opportunity costs this article cosiders the possibility that a seller can contract with one uninformed buyer prior to an auction involving two potential buyers the seller s optimal strategic ex ante contract more accurately reflects joint opportunity costs of the seller and the contracted buyer and therefore extracts more rent from the entrant moreover this ex ante contract mitigates the seller s ex post rent seeking vis a vis the contracted buyer accordingly it may create more social welfare than the absence of ex ante contracts depending upon the contracted buyer s financial constraint and the distributions of trade surplus implementation of the optimal strategic ex ante contract and policy implications are discussed

buyer power and intrabrand coordination we analyze the competitive effects of vertical contracts in a contracting situation where rival retailers offer contracts to a manufacturer in contrast to bernheim and whinston 1998 who study the situation in which competing manufacturers offer contracts to a common retailer we find that two part tariffs even if contingent on exclusivity or not do not suffice to implement the monopolyoutcome richer arrangements including e g conditional fixed fees and upfront payments are thus required to internalize all contracting externalities the welfare implications are ambiguous on the one hand richer contracts ensure that no efficient retailer is excluded on the other hand they allow firms to maintain monopoly prices despite intrabrand competition simulations suggest that the latter effect may be more significant

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

exclusive contracts and market dominance we propose a new theory of exclusive dealing the theory is based on the assumption that a dominant firm has a competitive advantage over its rivals and that the buyers willingness to pay for the product is private information in this setting the dominant firm can impose contractual restrictions on buyers without necessarily compensating them implying that exclusive dealing contracts can be both profitable and anticompetitive we discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases jel d21 d43 d82 d86 k21 l13 l40