duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

assessing horizontal mergers under uncertain efficiency gains the analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains we examine the role of uncertainty in this tradeoff in theory the attitude towards uncertainty depends on the curvature of the social objective function on the one hand adjustment effects both on the consumers and firms sides tend to make consumers surplus and firms profits convex on the other hand pass through effects may act in the opposite direction we show that convexity prevails in a number of situations including the most general linear demand model implications for empirical merger analysis are exposed

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

cournot and bertrand equilibria compared substitutability complementarity and concavity abstract this paper assesses the view that bertrand equilibrium is intrinsically more competitive than cournot equilibrium we consider an oligopoly model with linear demand and a mixture of substitute and complementary products our results provide support for the conventional wisdom and also indicate its limitations we provide counter examples showing that no clear cut comparison of prices and quantities is possible without strategic complementarity in either of the two games however price competition is indeed more competitive according to the following criteria lower mark up output ratios larger average output and lower average price

how do competitive pressures affect incentives to innovate when there is a market for inventions competition and intellectual property ip protections are complements in stimulating innovation when ip is appropriable a market for inventions forms and competitive pressures increase incentives to innovate competition among producers the demand side of the market for inventions and competition among inventors the supply side of the market for inventions create incentives to innovate when ip is not fully appropriable markets for inventions are limited and competitive pressures can decrease incentives to innovate firms vertically integrate r d and production and share technology to appropriate the returns to ip this implies that antitrust policy and ip protections are complements

optimal licensing of uncertain patents in the shadow of litigation this paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain we provide sufficient conditions of a general nature under which the licensor prefers to use a per unit royalty contract in particular we show that this is the case for the holders of weak patents if the strategic effect of an increase in a potential licensee s unit cost on the equilibrium industry profit is positive the latter condition is shown to hold in a cournot resp bertrand oligopoly with homogeneous resp differentiated products under general assumptions on the demands faced by firms as a byproduct of our analysis we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on cournot and bertrand equilibria

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

demand for money in india 1953 2003 the demand for money especially in the developing countries is an important relationship for formulating appropriate monetary policy and targeting monetary variables in this paper the demand for narrow money in india is estimated and its robustness evaluated it is found that there is a stable demand for money for almost half a century from 1953 to 2003 there is no evidence for any significant effects of the 1991 financial reforms

on the microeconomic foundations of linear demand for differentiated products abstract this paper provides a thorough exploration of the microeconomic foundations for the multi variate linear demand function for differentiated products which is widely used in industrial organization the setting is the standard representative consumer with a quasi linear utility function a key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined otherwise the true demand function may be quite complex multi valued non linear and income dependent we uncover failures of duality relationships between substitute products and complementary products as well as the incompatibility between high levels of complementarity and concavity the two good case emerges as a special case with strong but non robust properties a key implication is that all conclusions derived in applied economic models via the use of linear demand that does not satisfy the law of demand ought to be regarded with some suspicion

stability of the money demand function in asian developing countries previous studies that estimated the money demand function in asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique while the first group suffers from spurious regression problems the second group interpreted their finding of cointegration as a sign of stability of estimated parameters this study after incorporating the cusum and cusumsq tests into cointegration analysis shows that in some asian countries even though real m1 or m2 monetary aggregates are cointegrated with their determinants the estimated parameters are unstable

international technology transfer under potential threat of entry a cournot nash framework abstract this paper analyses the possibility of technology transfer from a technologically advanced foreign firm to a domestic firm of a less developed country when the product market is characterized by cournot nash competition the foreign firm is not allowed to enter the home market by a prohibitive tariff but the backward firm may not face any such resistance in the foreign markets this means that technology transfer under this situation involves potential threat of competition from the latecomer it is shown that by designing a suitable payment policy the host country government can induce the foreign firm to transfer the best technology however there are possible equilibria where worse than the best technologies are transferred

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

technology licensing contracts with network effects we study the optimal technology licensing contracts with network effects and investigate the welfare implications when the product innovator is an insider that acts as a stackelberg leader we show that i the market is fully covered when relatively small network intensity matches quality differentiations that are sufficiently large ii with regard to profit maximization the optimal licensing strategy varies from one of royalty licensing to two part tariff licensing as network effects increase not including fixed fee licensing iii consumer surplus is optimal under non licensing conditions in comparison to other licensing strategies due to the covered market iv depending on network effects the preferred strategies to achieve social welfare maximization change from no licensing or fixed fee licensing to two part tariff licensing and royalty licensing is not preferred in this instance v conflict does not always or necessarily occur between the goals of enterprise profit maximization and social welfare optimization two part tariff licensing is preferred both by the licensor and by society when the network effect is large

which demand systems can be generated by discrete choice we provide a simple necessary and sufficient condition for when a multiproduct demand system can be generated from a discrete choice model with unit demands

how stable is the demand for money in emerging economies one of the key elements of implementing the monetary policy is stability of the demand for money the literature includes a large number of studies that have tested the stability of the money demand in developed as well as less developed countries but not in emerging economies of eastern europe as market based data becomes available from these countries there is an urgency to test old theories for these modern market oriented economies in this article we consider the experiences of armenia bulgaria the czech republic hungary poland russia and the slovak republic using the bounds testing approach to error correction modelling and cointegration we show that money demand is stable in these countries

drastic innovations and multiplicity of optimal licensing policies abstract considering the licensing of a drastic cost reducing innovation by an outside innovator in an n firm cournot oligopoly we show that when the innovator uses combinations of fees and royalties there are either n 1 or n optimal licensing policies

licensing information goods abstract a significant amount of research on patent licensing and the diffusion of knowledge is organized around static frameworks of analysis patent holders however may face a dynamic problem namely the intertemporal consistency problem of the durable goods monopolist that is induced by durability on the demand side licensing practices such as exclusive licensing contracts and most favored customer clauses allow patentees to solve or mitigate this dynamic consistency problem there are situations however where these practices are not possible either due to the nature of the patent the case of information goods or due to compulsory patenting laws we study the effects of the intertemporal consistency problem on patent licensing in these situations relative to the existing literature we obtain the following main results i all of the firms that remain in the industry will be using the innovation ii royalty licensing may be superior to fixed fee or auction licensing from the licensor s point of view iii social welfare and consumer surplus may be lower than when the patent holder can commit not to make additional sales iv even for non drastic innovations the price of the good that is produced may be lower than the competitive price corresponding to the initial situation before the innovation was discovered

licensing weak patents in this paper we revisit the issue of licensing weak patents under the shadow of litigation departing from the seminal paper by farrell and shapiro 2008 we consider innovations of any size and not only small innovations and we allow the number of licensees to be less than the number of firms in the downstream industry it is shown that the optimal two part tariff license from the patent holder s perspective may either deter or trigger litigation and conditions under which each case arises are provided we also reexamine the claim that the licensing revenues from weak patents overcompensate the patent holder relative to what a natural benchmark would command finally we suggest two policy levers that may alleviate the harm raised by the licensing of weak patents

fee versus royalty licensing in a cournot duopoly model abstract this paper finds that royalty licensing can be superior to fixed fee licensing for the patent holding firm when the cost reducing innovation is non drastic the reason for this result is that the patent holding firm enjoys a cost advantage over the licensee under royalty licensing while the two firms compete on equal footing under fixed fee licensing

r d induced industry polarization and shake outs abstract we consider the standard two stage game of r d and cournot competition with ex ante identical firms but depart from the literature in assuming that r d is characterized by mildly instead of strongly decreasing returns to scale we establish that only extreme r d levels are possible at equilibrium and that for a broad range of parameters equilibria are asymmetric in r d levels possibly leading one firm to endogenously exit this provides a simple link between returns to scale in r d and industry polarization including shake outs a novelty is that exit may be triggered by positive opportunities in a strategic setting given the original nature of our r d equilibrium a complete welfare analysis is conducted including a possible role for r d subsidies

multilateral limit pricing in price setting games abstract in this paper we characterize the set of pure strategy undominated equilibria in differentiated bertrand oligopolies with linear demand and constant unit costs when firms may prefer not to produce when all firms are active there is a unique equilibrium however there is a continuum of non equivalent bertrand equilibria on a wide range of parameter values when the number of firms n is more than two and n 2 n 1 firms are active in each such equilibrium the firms that are relatively more cost or quality efficient limit their prices to induce the exit of their rival s when n 3 this game does not need to satisfy supermodularity the single crossing property or log supermodularity moreover the best responses might have negative slopes our main results extend to a stackelberg entry game where some established incumbents first set their prices and then a potential entrant sets its price

equilibrium prices in the bertrand and cournot oligopolies abstract the equilibrium prices for the bertrand and cournot oligopolies with product differentiation are compared if all firms have linear demand and cost functions and if in addition the jacobian matrix of the demand functions has a dominant negative diagonal the cournot equilibrium prices are not lower than the bertrand ones the general condition for the comparison of the bertrand and cournot equilibrium prices can be derived even if the nonlinearity is involved in the cost and or demand functions

competition and collusion in the american automobile industry the 1955 price war movements in total quantity and in quality adjusted price suggest a supply side shock in the american automobile market in 1955 this paper tests the hypothesis that the shock was a transitory change in industry conduct a price war the key ingredients of the test are alternative equilibrium models of oligopoly under product differentiation in nonnested cox tests of hypotheses a collusive solution is sustained in 1954 and in 1956 while a competitive solution holds in 1955 the result does not appear to be an artifact since it is robust in tests against alternative specifications copyright 1987 by blackwell publishing ltd

on the reinterpretation of money demand regressions a stylized fact concerning estimated money demand relationships is that lagged dependent variables have high explanatory power and large estimated coefficients which is hard to explain at a theoretical level marvin s goodfriend 1985 suggests that this may be due to the presence of serially correlated measurement errors in the independent variables the author demonstrates how consistent estimates of the short run demand function can be obtained even if the goodfriend hypothesis is accepted and also how the hypothesis might be tested application of the suggested test using the goldfeld 1973 data set leads to decisive rejection of the hypothesis copyright 1994 by ohio state university press

abuse of dominance and licensing of intellectual property patent thickets layers of licenses a firm needs to be able to offer products that embody technologies owned by multiple firms and licensing policies have drawn increasing scrutiny from policy makers patent thickets involve complementary products which gives rise to double marginalization the so called royalty stacking problem and has the potential to retard diffusion of new technologies and reduce consumer welfare this paper examines the impact of licensing policies of one or more upstream owners essential intellectual property ip on the downstream firms that require access to that ip the terms under which downstream firms can access this ip affects entry decisions product diversity prices and welfare we consider both the case in which a single party controls the essential ip and the case in which different parties control complementary pieces of essential ip we compare the outcome of several alternative standard licensing arrangements such as flat rate access fees royalty percentages per unit fees patent pools and cross licensing arrangements with or without vertical integration we first consider the case where there is a single upstream owner of essential ip increasing the number of licenses enhances product variety which creates added value but it also intensifies downstream competition which dissipates profits we derive conditions under which the upstream ip monopoly will then want to provide an excessive or insufficient number of licenses relative to the number that maximizes consumer surplus or social welfare when there are multiple owners of essential ip royalty stacking can reduce the number of the downstream licensees but also the downstream equilibrium prices the consumers face the paper derives conditions determining whether this reduction in downstream price and variety is beneficial to consumers or society finally the paper explores the impact of alternative licensing policies with fixed license fees or royalties expressed as a percentage of the price an upstream ip owner cannot control the intensity of downstream competition in contrast volume based license fees i e per unit access fees do permit an upstream owner to control downstream competition and to replicate the outcome of complete integration the paper also shows that vertical integration can have little impact on downstream competition and licensing terms when ip owners charge fixed or volume based access fees

university licensing of patents for varietal innovations in agriculture there has been a sharp increase in the number of patented agricultural products from public universities in the united states we develop an experiment to examine the revenue stream to universities from licensing plant based innovations in the experiment we asked subjects to bid for access for a patented input that would be used to manufacture a differentiated product treatments were employed to solicit bids that were financed by fees royalties and a combination of the two mechanisms under exclusive and non exclusive contracts the literature studying the economics of downstream duopoly competition in quantity suggests that revenues for the innovator would be greatest under a non exclusive contract that uses fees and royalties in our experiment we allow more than two firms to obtain access to the patent in the non exclusive treatments and our empirical results suggest that innovator revenues are greatest when royalties are used alone in a non exclusive contract

on the efficiency of bertrand and cournot equilibria with product differentation in a differentiated products setting with n varieties it is shown under certain regularity conditions that if the demand structure is symmetric and bertrand and cournot equilibria are unique then prices and profits are larger and quantities smaller in cournot than in bertrand competition and as n grows both equilibria converge to the efficient outcome at a rate of at least 1n if bertrand reaction functions slope upwards and are continuous then even with an asymmetric demand structure given any cournot equilibrium price vector one can find a bertrand equilibrium with lower prices in particular if the bertrand equilibrium is unique then it has lower prices than any cournot equilibrium

fee versus royalty reconsidered for an outsider innovator in a cournot oligopoly royalty licensing could be superior to both fixed fee and auction the result depends on a simple fact that has been overlooked in the existing literature namely the number of licenses can take only integer values

an analysis of intellectual property licensing strategy under duopoly competition component or product based abstract a component supplier holding patents can calculate the intellectual property licensing fees either as a percentage of sales prices of its customer manufacturers products i e product based strategy or as a percentage of the wholesale price of its component i e component based strategy selecting which strategy to license the patent plays a vital role in supply chain players strategic interactions especially when the downstream manufacturers compete this paper investigates which strategy is favored more by players of a supply chain which consists of a component supplier and two duopoly manufacturers the manufacturers are assumed to be heterogeneous in production cost but produce and competitively sell homogenous goods employing a supplier stackelberg game model we demonstrate that the component supplier prefers to implement the product based strategy nevertheless the manufacturers preferences are dependent on how effectively they produce products specifically the product based strategy could be favored by the manufacturer with a sufficiently high cost advantage over the rival furthermore we find that the supply chain players preferences of licensing strategy could be dependent on factors such as the market size the differences of the production costs and unit royalty fees when the products are imperfect substitutes

licensing under general demand and cost functions abstract we consider a cournot duopoly under general demand and cost functions where an incumbent patentee has a cost reducing technology that it can license to its rival by using combinations of royalties and upfront fees two part tariffs we show that for drastic technologies a licensing occurs and both firms stay active if the cost function is superadditive and b licensing does not occur and the patentee monopolizes the market if the cost function is additive or subadditive for non drastic technologies licensing takes place provided the average efficiency gain from the cost reducing technology is higher than the marginal gain computed at the licensee s reservation output optimal licensing policies have both royalties and fees for significantly superior technologies if the cost function is superadditive by contrast for additive and certain subadditive cost functions optimal licensing policies have only royalties and no fees

welfare reducing licensing abstract in this paper we characterize situations where licensing a cost reducing innovation to a rival firm using two part tariff contracts a fixed fee plus a linear per unit of output royalty reduces social welfare we show that it occurs if i the firms compete in prices ii the innovation is large enough but not drastic and iii the goods are close enough substitutes moreover we show that regardless of the type of competition first the optimal contract always includes a positive royalty and second even drastic innovations are licensed whenever the goods are not homogeneous

a new look at the classical bertrand duopoly abstract the paper provides necessary and sufficient conditions for the uniqueness of pure strategy nash equilibrium in the standard bertrand duopoly with a homogeneous product the main condition is elementary easy to interpret and nests all known sufficient conditions in the literature

on licensing policies in bertrand competition abstract three licensing policies the auction the fee and the royalty are studied in a bertrand type duopoly with differentiated goods the analysis is conducted in terms of a multistage noncooperative game involving an external patentee and two firms each producing a differentiated good in bertrand price competition a principal finding is that for a patentee the royalty may be superior to the other two policies journal of economic literature classification numbers 026 611 621

licensing a new product with non linear contracts this paper looks at a situation where a licensor owns a patent on a technology that allows the production of a new good the licensor seeks to license its innovation to a set of producers that differ according to their marginal cost of producing an existing good we show that the licensor is able to obtain the profit a monopolist would achieve by producing the new good the equilibrium licensing contract specifies both a fixed fee and a royalty scheme based on the production of a licensee le memoire examine la situation ou un detenteur de brevet sur une technologie qui permet de produire un nouveau bien cherche a ceder une autorisation d exploiter cette innovation a un ensemble de producteurs qui ont differents couts marginaux de production d un bien existant on montre que le detenteur de brevet est capable d obtenir le profit qu un monopoleur obtiendrait en produisant le nouveau bien le contrat de licence d equilibre specifie a la fois un paiement forfaitaire et un arrangement de royautes sur la base du volume de production de l exploitant

supermodularity and complementarity in economics an elementary survey the literature on supermodular optimization and games is surveyed from the perspective of potential users in economics this methodology provides a new approach for comparative statics based only on critical assumptions and allows a general analysis of games with strategic complementarities the results are presented in a simplified yet rigourous manner without reference to lattice theory for the special case of one dimensional parameter and actions sets with the emphasis being on wide accessibility detailed applications are presented for well known models of consumer behavior monopoly pass through bertrand and cournot competition strategic r d search and matching wherever appropriate useful tricks for applications and comparative comments are inserted

small income effects a marshallian theory of consumer surplus and downward sloping demand we formalize the marshallian idea that when the proportion of income spent on any commodity is small then the income effects are small if n is the number of goods we show under certain assumptions on preferences and prices that the order of magnitude of the norm of the income derivative of demand is 1 n as a corollary we get that for the case of a single price change the percentage error in approximating the hicksian deadweight loss by its marshallian counterpart goes to zero at least at the rate 1 n and that demand is downward sloping for n large enough

general licensing schemes for a cost reducing innovation optimal combinations of upfront fees and royalties are considered for a cost reducing innovation in a cournot oligopoly for both outside and incumbent innovators it is shown that for any nondrastic innovation a the license is practically sold to all firms ensuring full diffusion of the innovation b consumers are better off firms are worse off and the social welfare is improved c the optimal licensing policy involves positive royalty for relatively significant innovations d compared to an incumbent firm an outsider invests more in r d and has higher incentive to innovate and e as a function of the magnitude of the innovation the industry size that provides the highest incentive to innovate is u shaped

on the duration of technology licensing abstract we model an innovator s choice of payment scheme and duration as a joint decision in a multi period licensing game with potential future innovations and some irreversibility of technology transfer we find that it may be optimal to license the innovation for less than the full length of the patent and that royalty contracts can be more profitable than fixed fee licensing even in the absence of information asymmetry and risk aversion moreover licensing contracts based on royalty have a longer duration than fixed fee licenses and are more likely to be used in industries where innovations are frequent and intellectual property protection is weak our paper also highlights an important link between the study of technology licensing and the theory of durable goods

linear demand functions in theory and practice abstract integrability conditions for an incomplete system of linear demand functions are considered the parameter restrictions consistent with integrability are identified and the structure of the conditional preference map is obtained it is found that the conditional preferences for a set of linear demand functions are either quadratic or leontief from a translated origin welfare analysis with linear demand models is also considered