investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

a dynamic analysis of licensing the boomerang effect and grant back clauses this article develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on r d competition in the innovation market and to examine the rationale for often observed grant back clauses of particular concern are how the consideration of future competition distorts the licensing relationship and how the grant back clause can mitigate this distortion i also evaluate the validity of the casual antitrust argument that grant back clauses may adversely affect competition because they reduce the licensee s incentive to engage in r d and thereby limit rivalry in innovation markets

a general equilibrium theory of firm formation based on individual unobservable skills abstract a model of firm formation is built along the lines of knight 1921 contrary to kihlstrom and laffont 1979 the individuals are risk neutral but have different productive efficiencies we suppose that the individuals who are the more efficient workers are also the more efficient entrepreneurs each agent chooses the activity which gives her the larger expected income in equilibrium the more efficient people become entrepreneurs and under a special kind of increasing returns to scale assumption this is also what is implied by efficiency considerations however we show that the equilibrium number of entrepreneurs is always larger than the pareto optimal one a simple uniform lump sum tax on firms together with redistribution of the tax revenue to workers is nevertheless sufficient to restore efficiency

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

r d marketing and the success of next generation products this paper studies dynamic competition in markets characterized by the introduction of technologically advanced next generation products firms invest in new product effort in an attempt to attain industry leadership thus securing high profits and benefiting from advantages relevant for the success of future product generations the analysis reveals that when the current leader possesses higher research and development r d competence it tends to investmore in r d than rivals and to retain its lead position the leader s investment exhibits an inverse u pattern as this advantage increases in contrast when the leader enjoys an advantage that originates from the persistence of reputation it investsless than its followers now followers investment exhibits an inverse u pattern as reputation advantage increases depending on the extent of leader reputation industry structure can either exhibit frequent leadership shifts or prolonged incumbent dominance the basic framework is extended to allow investments in additional marketing variables e g advertising interestingly the leader takes advantage of strong demand for its current product by focusing more on advertising whereas the follower expends more on r d by shedding light on the implications of industry position for investment incentives and market evolution the analysis provides valuable insights for formulating marketing strategy in fast paced high tech business environments

innovation and diffusion in small firms theory and evidence the article provides an inventory of the strengths and weaknesses of small firms in a dynamic context to do this it considers verbal accounts of the processes of innovation and diffusion as well as quantitative studies testing cause effect relations it consider both economic and noneconomic factors concerning issues of motivation perception and knowledge first an overall summary is given of the characteristics of small business compared with large business as a basis for an assessment of strengths and weaknesses perhaps the most important characteristic of small business is its diversity and the article gives the conditions and sources of it other core characteristics are small scale personality and independence of the small firm from these derived characteristics strengths and weaknesses and core strategies can be inferred from the perspective of the firm strengths and weaknesses are subsequently analysed for the successive stages of innovation invention development tooling production introduction to practice market strengths and weaknesses in diffusion are analysed for the successive stages in the adoption process as proposed by rogers reference is made to theory and to empirical studies from the literature and from research by the present author

sex and sector differences in the dynamics of wage growth in the federal republic of germany research on wage differentials for men and women and for labor market sectors has relied largely on cross sectional analysis using data on three cohorts of west german men and women we bring a dynamic perspective to these issues by analyzing wage changes for three aspects of work histories 1 wage rate at time offirst entry into the labor market 2 wage changes when workers change jobs and 3 wage growth within jobs education affects first wages for men and women but the effect weakens sharply over time education also has a significant positive impact on wage growth within jobs over the entire period for men and a positive but not significant effect for women highly educated women do less well than other women when changing jobs consistent with the view that advancement for such women is impeded by a glass ceiling labor market segment affects initial wages and wage gains due to a job change however movement into internal labor markets skilled jobs in large firms does not confer an initial payoff in wages workers in sectors characterized by internal labor markets do not experience higher than average wage growth within jobs a result that runs counter to theories of segmented labor markets finally wages grow at a decreasing rate with duration of job for both men and women however wage growth is initially more rapid for women but also declines more sharply over time

industry and firm specific factors of innovation novelty this article investigates the underlying factors that might shape the firm s choices with respect to degrees of innovation novelty using a sample of 2983 firms observed under the portuguese community innovation survey we assess the relative relevance of a set of firm and industry specific factors in explaining firms choices about incremental or radical innovation the results indicate that both the firm s idiosyncratic historical factors giving rise to heterogeneous r d capabilities and the industry context have power to shape the firm s innovation choices even though firm specific factors appear to be more powerful the estimated impacts on firm s innovation novelty are nonetheless significantly moderated by the type of firm and industry

an experimental and theoretical analysis of price matching refund policies abstract price matching refund policies or offers by firms to match competitor s prices are common in both consumer and industrial marketing much of the previous theoretical work in economics suggests that price matching refunds are associated with higher prices in contrast the trade press postulates that price matching policies are associated with lower prices given these inconsistent views regarding price matching policies the authors experimentally examine how consumers view and interpret such policies and then develop a model that incorporates these consumer interpretations as well as asymmetries across stores in the model the asymmetry across stores is the key to deriving the conditions under which a signaling equilibrium exists in the presence of price matching policies the critical point is that the competition reducing and price discrimination effects which seem to form the basis of most of the previous theoretical literature can be counteracted by the presence of differentiated firms

efficient division of profits from complementary innovations abstract many products including microprocessors telecommunications devices computer software and on line auction services make use of multiple technologies each of which is essential to make or sell the product the owner of one technology benefits from the existence of complementary technologies we show that despite this externality the structure of payoffs that support efficient r d investment by duopolists racing to discover a single innovation generalizes to the structure that supports efficient investment for complementary innovations the paper also examines how alternative intellectual property regimes and legal institutions affect r d investment in complementary technologies the results have policy implications for the organization of r d the assessment of damages for patent infringement and allocations of value in patent pools

asymmetric outcome in a symmetric dynamic duopoly abstract in a dynamic duopoly will an initial asymmetry between firms increase or decrease over time we examine this issue within a stochastic dynamic alternate move duopoly model that explicitly accounts for action and reaction between firms we consider two firms that are symmetric with regard to all primitives such as demand cost and production functions and which are subject to the same stochastic environment the only asymmetry is with regard to their initial capital stocks which in turn asymmetrically influences their current and future profit and investment possibilities we offer a characterization of the stochastic steady state and its supporting ergodic set for each firm we are then able to identify the precise restrictions on the initial conditions under which the two firms either converge or diverge in the long run

schumpeterian competition in experimental markets abstract we report on a series of laboratory experiments that capture key elements of research and development r d rivalry the experimental environment has a small number of sellers who compete in terms of pricing and production decisions and in terms of cost reducing r d rewards for innovation depend on the profitability of product market competition the experiments capture a kind of dynamic schumpeterian competition there is a sharp contrast in experimental results between monopolies and four seller competitive markets aggregate r d is higher under competition than under monopoly and prices follow marginal cost reductions much more quickly under competition than under monopoly the paper examines market performance in the experiments and the sources of market performance problems

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

can the mortensen pissarides model with productivity changes explain u s wage inequality this article examines whether the mortensen pissarides matching model with productivity changes can explain the time pattern of wage inequality the main finding is that the model produces counterfactual results the main source of failure seems to be the exogenous matching function and or the exogenous surplus share neither of which allows firms to use wage policies to direct workers searches

an empirical test of the asymmetric models on innovative activity who invests more into r d the incumbent or the challenger the theoretical discussion concerning the question whether the incumbent or the potential entrant invests more into r d has attracted considerable interest this paper reports the results of an empirical study on this question using data of about 3500 german firms over the years 1992 to 1995 the survey explicitly asks the firms for their motives to undertake innovative activity it is thus possible to take account of intended not just completed market entry it turns out that the challenger invests more into r d in order to enter a new market than the incumbent thus the patent racing model by reinganum and others seems to characterize innovative activity more accurately than the competing auction model of gilbert and newbery we use a heteroscedastic tobit as well as a tobit model with selectivity in order to deal with the econometric problems of double censoring

further evidence of the relevance of the dual labor market hypothesis for the u k this study proposes that the earnings of career employees are influenced by a different set of parameters from the earnings of non career employees the above proposition is tested by using a matched employer employee sample within the econometric

changing consequences of job separation in the united states using the panel study of income dynamics the author examines the consequences of job loss between the periods 1976 81 and 1986 91 he finds stability in the overall incidence of job separation but a statistically significant increase in the incidence of involuntary job loss relative to quits for older workers he also finds that the consequences of involuntary job loss worsened the reemployment rate of workers who experienced involuntary job loss dropped from 67 in 1976 81 to 62 in 1986 91 and among those who found new jobs the odds of receiving a large wage cut rose from 9 in 1976 81 to 17 in 1986 91

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

when do more patents reduce r d this paper develops a simple duopoly model in which investments in r d and patents are inputs in the production of firm rents patents are necessary to appropriate the returns to the firm s own r d but patents also create potential claims against the rents of rival firms analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm s r d intensity and the number of patents it obtains when that condition is violated changes in exogenous parameters that induce an increase in firms patenting can also induce a decline in r d intensity such a negative relationship is more likely when 1 there is sufficient overlap in firms technologies so that each firm s inventions are likely to infringe the patents of another firm 2 firms are sufficiently r d intensive and 3 patents are cheap relative to both the cost of r d and the value of final output this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

a perpetual race to stay ahead this paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity the state of competition measured by the difference between the number of innovations introduced by the firms evolves stochastically according to their effort level the structure of markov perfect equilibria is identified it is generally not true that competition is fiercest when firms are closest rather firms invest under two distinct circumstances while sufficiently ahead to outstrip their rival and secure a durable leadership while behind to regain leadership and prevent the situation from worsening to the point where their rival outstrips them industry such a market structure cannot be adequately modelled by a repeated game since history obviously affects market opportunities more precisely previous outcomes determine the range of available actions and pay offs economists have thus resorted to the study of races to gain insights into the strategic issues raised by such competition with the notable exceptions of aoki 1991 harris 1991 and budd harris and vickers 1993 most of the literature has analysed formal races displaying exogenous finishing lines or deadlines as well as final prizes and rewards and the corresponding results rely on backward induction however such assumptions do not seem to capture accurately the essential features of many markets often the rivalry only ends if at all when one of the competitors withdraws so that the deadline should be endogenized moreover benefits and losses are continuously collected additionally the emerging empirical literature on races stresses the inadequacy of standard models and the need to model r d as a race with multiple prizes in the words of cockburn and henderson 1994 our finding that the modern game theoretic literature is of only limited usefulness as an empirical guide points to the need to model r d as a race with multiple prizes the model analysed in this paper is an attempt to offer an adequate framework for this type of dynamic competition the stochastic evolution of the state of competition between two firms depends on their respective effort levels the state of competition is measured by the

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

wage discrimination across ethnic groups evidence from israel i introduction wage differentials and occupational segregation have been intensively studied and well documented in the economic literature empirical analyses have demonstrated differences by gender and ethnicity and theoretical studies have attempted to explain the results polachek 1975 1993 leads the group that emphasizes human capital differences in explaining wage differences and segregation while bergmann 1974 1986 is in the forefront of a second group of scholars who claim that discrimination is the major source of inequality of wages and occupations in the united states race differentials in earnings and racial segregation decreased dramatically during the 1960s and the 1970s but sex differentials did not in 1980 the duncans 1955 segregation index calculated by fuchs 1989 across 503 occupations was about 30 for blacks versus whites and about 60 for men versus women 1 fuchs 1989 also showed that by 1980 the wage differential between white and black men 15 percent was less than half the difference between white men and white women 40 percent polachek and siebert 1993 137 39 present data showing that in 1990 the pay of u s women averaged 65 to 90 percent of that of men depending on the occupational category the gap has been relatively constant but there is some evidence that it has been narrowing in recent years they also find that earning ratios by occupation in the u k are very similar to parallel ratios in the u s chiswick 1983a 1983b and carlson and swartz 1988 among others examine earnings of ethnic minorities they find that most ethnic groups fare quite poorly compared to the white population but a few minorities jews chinese and japanese do as well or even better than the white majority the earnings gap for most groups declined over the 1960s and the 1970s and the portion of that gap that might be assignable to discrimination also declined in this study we examine ethnic wage differentials discrimination and segregation in the israeli labor market israel provides a tailor made setting for ethnic studies since its jewish population 4 335 million in 1993 consists of people with a large diversity in their countries of origin the first wave of jewish immigrants following the establishment of the state of israel in 1948 were holocaust survivors from europe or refugees from the predominantly moslem countries of north africa the middle east and yemen others came from north and south america western europe south africa and australia to live a more meaningful jewish life in the homeland israel encouraged and assisted these immigrants as part of an active pro immigration ideology and policy the main wave of immigration arrived in the late 1940s and early 1950s as friedlander 1975 shows between 1948 and 1952 the jewish population in israel increased from about 630 000 to nearly one and a half million an annual average growth rate of over 24 percent later there were three significant waves of immigration the first occurred at the beginning of the 1960s with annual immigration reaching an average of 57 000 per year an increase of 2 percent per year in population the second occurred in 1972 73 when 55 000 immigrants arrived annually an annual population increase of 1 7 percent the third large wave began in august 1989 with a massive influx of immigrants from the former u s s r generating about a 10 percent increase in the population in the years 1990 93 the absolute figures are 199 516 immigrants in 1990 176 100 in 1991 77 057 in 1992 and 66 145 in 1993 israel central bureau of statistics 1994 in 1991 about 15 000 ethiopian jews also arrived in israel the major ethnic division in israel is based on the country of origin although jews of various origins speak a number of different languages and perceive themselves as having some distinctive ethnic characteristics the main distinction is between jews originating from asia and africa excluding south africa easterners and those from america europe south africa and australia westerners

parental background educational attainments and returns to schooling and to marriage the case of israel this paper investigates the effect of family background attainments and on returns to own and wife s schooling for jewish males israel three dimensions of paternal background are referred to father s education the prestige of the father s occupation and whether the father is of a western origin an advantage in the western oriented israeli society for each of these types of segmentation it is found that both the level of and the returns to own and wife s schooling after some years of marriage are higher for those coming from a more favourable background these empirical findings are consistent with an investment in schooling model in which differences in demand productivity of own and wife s schooling vary more than differences in supply of investment funds

a two stage model of research and development with endogenous second mover advantages this paper describes a simple two stage model of research and development in which the winner of the research stage has the option of moving first in the development stage some unexpected results emerge in equilibrium the leader in the development stage invests less than each follower and is consequently least likely to collect the patent moreover the leader receives a lower expected payoff than each of the followers thus there are endogenous second mover advantages using a game of timing in which the identity of the stackelberg leader is determined to link the two stages i find that firms face quite different incentives in the research stage although the leader invests less than each follower in the research stage as well the leader enjoys higher expected revenue from the complete two stage game than does each follower the equilibrium is inefficient because there is a lag between the time at which research is completed and the time at which development is begun and because aggregate investment is inefficiently asymmetrically distributed across firms

creative destruction among industrial firms in the united states there is a growing interest in dynamic modeling of capitalism as recent experience has demonstrated the importance of innovation in shaping the structure and growth rate of capitalist nations economists recognize that innovation by its nature describes a dynamic evolutionary model of capitalism which is inadequately described by the equilibrium models which have dominated economic thought since the 19th century

labour market segmentation a local labour market analysis using alternative approaches earlier studies have generally attempted to establish the presence or otherwise of labour market segmentation using a single technique using data drawn form the british social and economic life initiative sceli for six local labour markets this paper tests for segmentation using four different methods of analysis a simple career non career model cluster analysis and switching regressions the results in general suggest that explanatory power is not improved by analysing the labour market in different segments but this simple career model points to higher rewards for given characteristics in the career sector and the results of the switching regression model are consistent with duality in one of the six markets

emergence of entrepreneurs following exogenous technological change this paper explains how after an exogenous technological change occurs entrepreneurs displace incumbents who were ex ante capable of exploiting any innovations that resulted from the change the model initially considers classical economic assumptions in the context of process innovations and then its robustness to uncertainty bounded rationality firm asymmetry and product innovations are discussed the model is preliminarily tested against industry trends using both results from an analysis of the information technology sector and from the literature the paper does not suffer from the inconsistency of explaining how capable incumbents are displaced by resorting to characterizations of incumbents as incapable due to some inefficiency the paper models incumbents as efficient yet rationally choosing in some instances to be displaced copyright 1999 john wiley sons ltd

endogenous market structures and innovation by leaders an empirical test models of competition for the market with endogenous market structures show that contrary to the arrow view an endogenous entry threat induces the average firm to invest less in r d and the incumbent leader to invest more we test these predictions using a unique dataset for the german manufacturing sector the mannheim innovation panel in line with our predictions endogenous entry threats as perceived by the firms in survey data reduce r d intensity for an average firm but they increase it for an incumbent leader these results hold after a number of robustness tests with instrumental variable regressions

licensing in the theory of innovation this article analyzes licensing in a noncooperative r d game we ask two questions what are the incentives for licensing a production technology and what is the impact of licensing on the pattern of innovation and the consequent evolution of industry costs and market structure the gainsfrom trading information through licensing contracts are achieved through the replacement of inefficient production techniques the ex post incentive and the elimination of inefficient research expenditures the ex ante incentive in a duopoly the availability of licensing encourages research when the firms initial production technologies are close in costs and discourages research when initial costs are asymmetric

innovation timing games a general framework with applications abstract we offer a new algorithm for analyzing innovation timing games its main advantage over the traditional approach is that it applies to problems that had previously been intractable we use the algorithm to examine two classical innovation problems we find that the competition takes the form of a waiting game with a second mover advantage either for any level of r d costs process innovation or for high r d costs product innovation moreover both models predict that the second mover advantage is monotonically increasing in the costs of r d

incumbents use of pre entry alliances before expansion into new technical subfields of an industry industry incumbents frequently delay entry into emerging technical subfields fearing product cannibalization and uncertain investment and enter only after technical and market uncertainties have subsided we predict that many incumbents particularly stronger firms will participate in alliances with other firms before their standalone entry the alliances will be used to realize part of the value of specialized assets and to gain information about the emerging products and markets we support the predictions with evidence from the us market of the medical diagnostic imaging industry

declining job security this article defines and analyzes job security in the context of implicit contracts designed to overcome incentive problems in the employment relationship contracts of this nature generate predictions concerning the relationship between job security parameters such as worker seniority and sectoral economic conditions and the probability of separations to test these predictions i estimate binomial and multinomial models of job separations using panel study of income dynamics psid data for the years 1976 93 the results are consistent with a decline over time in the incentives to maintain existing employment relationships for male workers and for skilled white collar women

an international multilevel analysis of product innovation this paper studies multilevel determinants of product innovation by incumbent firms with data from 68 countries covering over 25 000 firms in eight manufacturing sectors the author assesses the predictions of interdisciplinary research on firm behavior in different contexts which have emphasized that product innovation is affected by three sets of factors the extent of global engagement information spillovers and market structure the empirical model of the probability of observing a product innovation a probit model by a firm considers three levels of analysis firm characteristics industry characteristics and the national context the econometric evidence supports the global engagement and information spillovers hypotheses but the evidence on the role of market structure is mixed regarding global engagement the evidence suggests that product innovation by incumbent firms is positively correlated with the act of investing in r d and licensing of foreign technologies and country level average import tariffs reduce the probability of product innovation regarding information spillovers the evidence also shows that a country s patent density is positively correlated with product innovation in contrast concerning the market structure hypotheses country level indicators of business density and of policy induced costs of entry are not robustly correlated with product innovation

innovative activity and sunk cost abstract we analyze innovative activity in a general framework with time dependent rewards and sunk costs when firms are identical innovation is delayed by an increase in the number of firms or a decrease in the size of the reward when one firm has higher profit potential it is more likely to innovate first our framework generalizes an all pay auction however we show that under certain conditions there is qualitatively different equilibrium behavior

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

the evolution of market structure when there is a sequence of innovations the paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate does one firm extend its technological superiority to become increasingly dominant or does technological leadership constantly change hands in a process of actionreaction a simple duopoly model is proposed in which the answer to this question depends upon the nature of product market behaviour in that model highly competitive product market behaviour leads to increasing dominance whereas cournot behaviour may lead to action reaction

equilibrium bias of technology this paper presents three sets of results about equilibrium bias of technology first i show that when the menu of technological possibilities only allows for factor augmenting technologies the increase in the supply of a factor induces technological change relatively biased toward that factor meaning that the induced technological change increases the relative marginal product of the factor becoming more abundant moreover this induced bias can be strong enough to make the relative marginal product of a factor increasing in response to an increase in its supply thus leading to an upward sloping relative demand curve i also show that these results about relative bias do not generalize when more general menus of technological possibilities are considered second i prove that under mild assumptions the increase in the supply of a factor induces technological change that is absolutely biased toward that factor meaning that it increases its marginal product at given factor proportions the third and most important result in the paper establishes the possibility of and conditions for strong absolute equilibrium bias whereby the price marginal product of a factor increases in response to an increase in its supply i prove that under some regularity conditions there will be strong absolute equilibrium bias if and only if the aggregate production function of the economy fails to be jointly concave in factors and technology this type of failure of joint concavity is possible in economies where equilibrium factor demands and technologies result from the decisions of different agents

segmented labour markets theory and evidence this paper examines the possibility of accepting the labour market segmentation approach as a valid alternative to the classical and neo classical analysis of labour markets it consists of three main parts the urst part contains a historical analysis of both the distant and recent origins of the labour market segmentation hypothesis part two outlines the central ideas of both segmentationalists and radical theorists who attempted to explain the fragmented nature of labour markets and the importance of institutional and social inuuences upon pay employment and mobility of individual workers between different labour market sectors the third part examines the case for labour market segmentation using four alternative techniques and discusses the issue of mobility among different labour market segments it is thereby concluded that the lack of agreement among the segmented labour market theorists on both theoretical and methodological issues has prevented them from developing a consistent and convincing argument based on veriuable empirical evidence to validate their thesis

which firms buy licenses market positions and license expenditures this paper presents the empirical results of a comparison of technology licensing expenditures of german companies in order to test implications of the gilbert and newbery 1982 model aside from standard control variables the motives for innovation expenditures are also taken into account we differentiate between firms intending to secure their present position in the market incumbents and those intending to enter a new market challengers in line with the prediction of the gilbert and newbery model we find that incumbents show higher expenditures for technology licenses than potential entrants

testing spanish labour market segmentation an unknown regime approach this paper studies the existence of two differentiated segments primary and secondary in the spanish labour market for this a methodology switching regression model with unknown regimes is used which on the one hand does not demand a priori demarcation of segments and on the other enables the allocation of workers to the segments to be treated as a factor endogenous to the model itself and closely connected with the wage setting mechanisms operating in the segments the empirical results show that the assignment to segments is not random and that there are substantial differences in the wage determination process between the two sectors furthermore the model estimated has allowed analysis of the ex post composition of the segments and corroboration to a large extent of the predictions of the dual labour market theory

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

is firm size conducive to r d choice a strategic analysis of product and process innovations abstract using a duopoly model of multiproduct firms we show that different innovation incentives cause the larger firm to invest more in process cost reducing innovations and the small one to allocate more resources to search for new products because of this heterogeneity of r d behavior the large firm remains dominant for the original product in the post innovation market but the small firm is more likely to be a leader in the new product market these theoretical results are consistent with recent empirical findings

on the competitive pressure created by the diffusion of innovations abstract we consider the decision of a dominant firm to adopt a sequence of potential cost reducing innovations where the latest technology adopted diffuses to a competitive fringe at an exogenous rate with price competition on the product market the leader optimally spaces apart the adoption dates of successive innovations so the industry is characterized by schumpetarian cycles of alternating innovation and diffusion an increase in the rate of diffusion has ambiguous effects on innovative activity and up to a point hastens the pace of innovation these results may however be reversed in the case of quantity competition

a matching model with endogenous skill requirements we consider a labor market in which workers differ in their abilities and jobs differ in their skill requirements the distribution of worker abilities is exogenous but we model the choice of skill requirements by firms high skill jobs produce more output than low skill jobs but high skill jobs require high skill workers and thus are more difficult to fill we use a matching model together with a nash bargaining approach to wage setting to determine the equilibrium mix of job types along with the equilibrium relationship between worker and job characteristics wages and unemployment

testable competing hypotheses from structure performance theory efficient structure versus market power this paper provides a structure performance theory that can accommodate leading firm efficiency as well as several competing market power hypotheses the author derive s testable implications distinguishing the simple collusion product differentiation and scale economy hypotheses from the innovative lea ding firm alternative it is shown that recent evidence of a positive market share price cost margin pcm relationship and a nonpositive concentration pcm relationship can reject the scale economy and simpl e collusion hypotheses in homogeneous product markets unfortunately this same evidence cannot reject the product differentiation hypothe sis in favor of leading firm efficiency copyright 1988 by blackwell publishing ltd

market structure incentive to patent and the pace of innovation abstract in a model of sequential innovations it is shown that the simple monotone relationship between the number of firms and the speed of innovation see e g loury 1979 no longer holds if we explicitly take account of the incentive to patent

cooperative r d under uncertainty with free entry abstract this paper analyzes the effects of cooperative r d arrangements in a model with stochastic r d and output spillovers our main innovation is to allow for free entry in both the r d race and product market moreover in contrast with the literature we assume that cooperative r d arrangements do not have to include all the firms in the industry we show that sharing of research outcomes is a necessary condition for the profitability of cooperative r d arrangements with free entry the profitability of rjv cartels depends on their size subsidies may be desirable in cases of larger rjvs since they are the ones which are less likely to be profitable

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

on the persistence of leadership or leapfrogging in international trade when two countries starting from different quality levels reflecting different conditions on domestic market demands open to trade two possible equilibria arise in the first the quality leader maintains its position in the second leapfrogging occurs however the latter is possible only if the initial quality gap is not too wide further when the risk dominance criterion is used only the former equilibrium is selected these results suggest that initial conditions such as domestic market size or home demand preferences are important factors in determining relative competitiveness of firms in international markets

skill bias and employment frictions in the u s labor market 1970 1990 this article studies simultaneous changes in four labor market variables the unemployment rates for college and high school graduates the education wage premium and the level of college participation it develops an equilibrium search and matching model of the labor market where education is endogenously determined then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the united states can be traced to changes in the environment a skill biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables

information spillovers incumbency and conservatism abstract this paper studies the relationship between the existing ventures of a firm and its incentives to undertake new ventures we argue that whenever a firm undertakes a new venture it does so with the risk that information associated with that venture will reflect on all of the firm s products if the costs of bad news exceed the benefits of good news the firm will be less likely to undertake the venture this is the case in our model in which an incumbent risks losing monopoly status in an established market should its new venture fail thus incumbency can breed conservatism

the influence of local search and performance heuristics on new design introduction in a new product market abstract this study develops and tests three sets of predictions concerning new design introduction during the initial period of ferment in a new product market we root our predictions most directly in the evolutionary economic concepts of local search and performance heuristics first we argue that new entrants will introduce most designs that are new to a product market during an initial period of ferment second we argue that local search will lead most product market incumbents that introduce second or subsequent designs after their entry to introduce designs that are similar to those incorporated in their existing products third we argue that firms selling products based on designs that are losing aggregate share in the market will be likely to introduce products based on new designs while firms losing market share to firms that are selling the same design are unlikely to introduce new designs our empirical analysis examines the magnetic resonance imaging mri subfield of the diagnostic imaging equipment industry between 1980 and 1986 a period that begins with the introduction of the first mri design and ends with the emergence of widely accepted design characteristics the results support the argument that local search and performance heuristics along with other market factors and business characteristics influence design introduction during a period of ferment

are the unemployed unemployable abstract this paper develops a matching model of the labor market under wage rigidity when hiring decisions are irreversible there are two types of workers the skilled and the unskilled the model is used to analyze whether technological advances may have increased unemployment it is shown that it is likely to be so if they are associated with an increase in the productivity and or the supply of skilled workers relative to unskilled workers these effects are stronger when hiring decisions are more irreversible

cost reducing r d in oligopoly abstract this paper provides a conjectural variations model to explore competition in cost reducing r d and the nature of the inter firm externalities it is shown that 1 r d investment in a market with price competition becomes optimal if firms expect that changes in their own r d investment are followed by the rival firms 2 the optimal r d subsidies are positive in collusive oligopolies but negative in competitive oligopolies 3 joint r d ventures in oligopoly could reduce total surplus by causing underinvestment and 4 promoting price competition reduces welfare if firms are not collusive in their r d decisions

long run versus short run decisions r d and market structure in spanish firms abstract i present new econometric evidence on the relation between market structure and r d using data on spanish firms i adopt a different approach from previous studies by distinguishing between long run and short run decisions of firms regarding r d i assume that the long run or strategic decision is whether to conduct r d or not and the short run choice is how much to invest once the firm decides to be innovative i argue that market structure affects long run r d decisions but does not affect short run ones a heckman type selection model is used to test such a relation the results are robust to several specifications and measures of monopoly power

patenting in the shadow of independent discoveries by rivals abstract this paper studies the decision of whether to apply for a patent in a dynamic model in which firms innovate stochastically and independently in the model a firm can choose between patenting and maintaining secrecy to protect a successful innovation i consider a legal environment characterized by imperfect patent protection and no prior user rights thus patenting grants probabilistic protection and secrecy is effectively maintained until rivals innovate i show that 1 firms that innovate early are more inclined to choose secrecy whereas firms that innovate late have a stronger tendency to patent 2 the incentives to patent increase with the innovation arrival rate and 3 an increase in the number of firms may cause patenting to occur earlier or later depending on the strength of patent protection the socially optimal level of patent protection which balances the trade off between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly is lower with a higher innovation arrival rate or a larger number of firms

presidential address innovation in retrospect and prospect this paper asks whether innovation has slowed in recent decades while there has been dramatic progress in information and communications technology the recent record of innovation in the crucially important agriculture energy transportation and health care sectors is cause for concern the paper also considers whether the pace of innovation is sufficient to improve or even maintain living standards in the face of still rapidly growing population global warming and other challenges i review the major market failures that lead to under provision of innovation and question whether current innovation policy particularly patent policy is effective in promoting innovation ce memoire se demande si l innovation a ralenti au cours des dernieres decennies alors qu il y a eu progres dramatique dans les technologies de l information et des communications le dossier des innovations recentes dans des secteurs aussi importants que l agriculture l energie le transport et la sante a de quoi nous donner du souci le texte se demande aussi quel rythme d innovation pourrait suffire pour ameliorer ou maintenir notre niveau de vie face a une population qui croit rapidement aux changements climatiques et aux autres defis on passe en revue les principales faillites du marche qui ont pu engendrer une offre insuffisante d innovation et on se demande si la politique d innovation en particulier pour ce qui est de la politique des brevets est efficace pour promouvoir l innovation

product market competition and r d rivalry abstract this paper analyzes the impact of a future r d race on current firm behavior in the product market it is shown that in order to soften rivals in the future r d race firms behave less aggressively in the pre innovation product market than in the standard duopoly models as a result the r d rates are lower than what firms would choose if standard duopoly outcomes are assumed r d cooperation is shown to be capable of restoring the duopoly outcome

the dynamics of bertrand price competition with cost reducing investments the authors would like to acknowledge the funding received from the danish council for independent research and innovation fund denmark fedor iskhakov gratefully acknowledges the support from the australian research council projects ce110001029 and fl110100247 as well as from frisch centre project 1307 financed by the ministry of labor norway

intellectual property rights in a quality ladder model with persistent leadership this paper analyzes the effects of intellectual property rights in a quality ladder model of endogenous growth in which incumbent firms preemptively innovate in order to keep their position of leadership unlike in models with leapfrogging granting forward protection and imposing a non obviousness requirement reduces growth in the main case where entrants and incumbents have free access to the same r d technology infinite protection against imitation granted independently of the size of the lead maximizes growth if entrants have to engage in costly catch up before they can undertake frontier r d growth is maximal for a finite expected length of protection against imitation

production experiences and market structure in r d competition abstract in the rd and ii the likelihood of persistent leadership increases with the value of being the winner and the value of being a loser but decreases with expected waiting time of r d innovation and the flow of monopoly profits however destructive innovations may still occur even when production experiences are allowed to play an important role in the r d competition

market leadership with a sequence of history dependent patent races this note extends the results of j vickers 1986 examining the consequences on the evolution of market structure of having payoffs and thus profits and incentives which depend on the technological history of the firms in a simple duopoly model the author determines the conditions under which the technological leadership of a firm is strengthened over time increasing dominance or is progressively eroded by the rival catching up this reformulation of vickers model can also accommodate incremental innovations i e technological changes that do not allow the innovator to overtake the rival copyright 1989 by blackwell publishing ltd

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

innovation and competition the role of the product market abstract we study how competition impacts innovation and welfare when firms compete both in the product market and in innovation development this relationship is complex and may lead to scenarios in which a lessening of competition increases r d and consumer welfare in the long run we provide conditions for when competition increases or decreases industry innovation and welfare these conditions are based on properties of the product market payoffs implications for applied work and policy are discussed

why put all your eggs in one basket a competition based view of how technological uncertainty affects a firm s technological specialization conventional wisdom suggests that when a firm faces technological uncertainty it responds by becoming less technologically specialized so as to remain adaptable to subsequent resolution of this uncertainty we adopt a competition based view of technological uncertainty to identify an opposite effect in competitive settings the firm may instead become more specialized when faced with greater technological uncertainty so as to focus on advancing its technologies against competition and influence the resolution of uncertainty in its favor over rivals we propose that this effect is accentuated when the firm expects that it cannot easily adapt to rivals technologies subsequently specifically when rivals are a greater deterrent through being litigious or innovative using u s government funding for fuel cell research as a policy shock with stock option implied volatilities to measure expected uncertainty we find empirical support for our propositions among firms active in research and development in the u s communications equipment industry through these findings we demonstrate that a competition based view of uncertainty identifies an alternative path for the firm s resource accumulation under uncertainty and we stress that the resolution of uncertainty can be something the firm attempts to influence rather than adapt to

factor proportions and relative wages the supply side determinants of wage inequality supply side factors may contribute to rising wage inequality first certain changes in the supply of skills allegedly exacerbate wage inequality women s increased labor force participation and increased immigration are the leading candidates both allegedly reduce the wages of less skilled men however immigration s impact on wage inequality has been minor and the effects of women s participation is inconclusive second in evaluating the likelihood that human capital investment will mitigate future inequality evidence suggests that rising returns to education have increased the proportion of young people attending college limiting the growth of inequality among high wage workers

testing the dual labor market hypothesis evidence from the israel labor mobility survey little research seems to have addressed the testing of the dual labor market model for nondeveloping economies outside the u s and the u k this paper examines the hypothesis for israel utilizing individual data drawn from the israel labor mobility survey and assigning workers to primary and secondary sectors on the basis of occupational prestige scores earnings functions are estimated and compared for the two sectors the results are very closely in line with predictions of the dual labor market model thus strongly suggesting that the dual labor market hypothesis may be relevant for israel

industry evolution with a sequence of technologies and heterogeneous ability abstract a model of industrial evolution with a succession of process types and the presence of heterogeneous research ability is presented first a model of schumpeter s creative destruction process is proposed revolutionary change in technology is shown to bring waves of upheaval to a stable industry order second aspects of the debate as to whether all firms in an industry benefit from concentration or whether increased profits accrue solely to firms with superior ability are assessed simulations of the model show that firm profit rates are more closely correlated with firm size than research ability

the role of sunk costs in the decision to invest in r d we present a dynamic empirical model of a firm s r d decisions that is consistent with the existence of sunk r d costs taking into account that these costs may differ between small and large firms and among different technological regimes we estimate a multivariate dynamic discrete choice model using firm level data of spanish manufacturing for 1990 2000 conditional on firm heterogeneity and serially correlated unobservable factors we find that r d history matters this true state dependence allows inferring the existence of sunk r d costs associated with performing r d sunk r d costs are found to be higher for large high tech firms

the underemphasized role of established firms as the sources of major innovations we argue that established firms including industry incumbents and diversifying entrants play vital all underemphasized roles as the sources of major innovations in many industries the study presents empirical evidence showing that established firms are often sources of major innovations in the telecommunications and medical sectors we conduct an exploratory investigation of how variation in the types of technical and market change influence whether industry incumbents diversifying entrants or nets companies are the sources of major innovations copyright 1996 by oxford university press