network externalities technological progress and the competition of market contracts abstract network externalities are used to describe the fact that many modern products become more valuable the more users adopt products of the same technology where network externalities and technological progress exist the various kinds of inefficiencies discussed in the recent literature can be explained by different types of contracts the main categories analysed are simple market contracts update contracts and service contracts it is shown that these types of contract emerge endogenously from the incentive structure of profit maximizing firms competition between these contracts may substantially reduce inefficient allocations caused by network externalities

the nature of diversified business groups a research design and two case studies diversified business groups dominate the private sectors of most of the world s economies several of these economies have undergone sudden policy changes that significantly increase domestic competitive intensity the authors demonstrate how the changes in corporate scope that accompany such competitive shocks can be used to weigh the importance of different explanations for the existence of diversified business groups the authors illustrate their reasoning by studying the restructuring of two of india s largest business groups following a comprehensive post 1991 package of policy reforms the case studies also elucidate aspects of the restructuring process that should inform larger sample empirical analyses copyright 1998 by blackwell publishing ltd

tipping and concentration in markets with indirect network effects this paper develops a framework for measuring tipping the increase in a firm s market share dominance caused by indirect network effects our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects in practice this measure requires a model that can predict the counterfactual market concentration under different parameter values capturing the strength of indirect network effects we build such a model for the case of dynamic standards competition in a market characterized by the classic hardware software paradigm to demonstrate its applicability we calibrate it using demand estimates and other data from the 32 64 bit generation of video game consoles a canonical example of standards competition with indirect network effects in our example we find that indirect network effects can lead to a strong economically significant increase in market concentration we also find important roles for beliefs on both the demand side as consumers tend to pick the product they expect to win the standards war and on the supply side as firms engage in penetration pricing to invest in growing their networks

durable goods and product obsolescence the issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product consumers expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence the new product is characterized by consumers increased willingness to pay and by its competitive interaction with the old product these characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales we analyze the effect of these characteristics of the new product on the firm s optimal sales strategy we consider the various policy measures available to the firm including limiting initial sales in order to lower cannibalization of the new product buying back the earlier version of the product in order to generate greater demand for the new product and announcements of future product introductions we find that for modest levels of product improvement the firm s optimal policy is to phase out sales of the old product while for large improvements a buy back policy is more profitable lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming

self reinforcing mechanisms and market information abstract we consider the possibility of switching between two technological standards when there are network externalities and imprecise market information by modeling the decisions of each firm by a stochastic process necessary and sufficient conditions for there to be multiple equilibria in market share and for permanent lock in to one of these equilibria not to occur are presented in such a case the market lingers at prevalence of one standard with intermittent transitions to prevalence of the other the frequency of which is derived by the theory of large deviations

dynamic interaction between markets for leasing and selling automobiles we develop a model of dynamic interactions between price variations in leasing and selling markets for automobiles our framework assumes a differential game between multiple bertrand type competing firms which offer differentiated products to forward looking agents empirical analysis of our model using monthly us data from 2002 to 2011 shows that variations in selling cash market prices lead rapidly dissipating changes of leasing market prices in the opposite direction we discuss the practical implications of these results by augmenting a standard leasing valuation formula the additional terms represent the leased asset value changes that can be expected on the basis of past variations in automobile selling market prices

tying and innovation a dynamic analysis of tying arrangements this paper analyses the effects of tying arrangements on r d incentives it shows that tying is a means through which a firm can commit to more aggressive r d investment in the tied goods market tying also has the strategic effect of reducing rivals incentives to invest in r d the strategy of tying is a profitable one if the gains via an increased share of dynamic rents in the tied goods market exceed the losses that result from intensified price competition in the market the welfare implications of tying and consequently the appropriate antitrust policy are discussed

oligarchic family control social economic outcomes and the quality of government wealthy families as opposed to small public shareholders characterize ownership of the large corporate sectors of many countries around the world this paper shows that greater oligarchic family control over large corporations is associated with worse social economic outcomes it also correlates with more bureaucratic and more interventionist governments and less developed financial markets further tests show that red tape price controls and the lack of shareholder rights protection are the paramount factors relating to the extent of family control of large firms these results are broadly consistent with olson and others who argue that economically entrenched wealthy insiders pursue rent seeking activities to preserve the status quo and that this increases corruption and impedes growth

the two freedoms economic growth and development an empirical study log linear methods are applied to categorical data containing economic freedom political freedom the level of income and the rate of economic growth for a panel of about 100 countries from 1975 to 1992 the main results are given economic freedom the rate of economic growth is independent of political freedom and the level of income given the level of income political freedom is independent of economic freedom and the growth rate the analysis suggests the fundamental effects of economic freedom in fostering economic growth and a high level of income as the condition of a high degree of political freedom

business groups and internal capital markets the recovery of the mexican economy in the aftermath of the 1995 crisis in the second half of the nineties the mexican economy experienced a severe financial crisis however as the initial panic subsided mexico started to show promising signals of macroeconomic recovery not only did the economy rebound within a year but also grew steadily afterward averaging an annual rate slightly above 5 during 1996 2000 in this article it is suggested that the business group structure helped in the recovery of the economy the collapse of the banking system and the interruption of financing flows through the domestic financial markets was overcome by a change in the firms capital structure firms when possible started to depend more on trade credit and the internal capital market of business groups created a financial cushion that kept the economy working in order to offer a rationale for the mexican experience a theoretical model is presented where it is shown that moral hazard problems are reduced within a business group as long as affiliated firms in the nontradable sector surrender control rights during periods of crisis copyright 2007 oxford university press

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

innovation regimes r d and radical innovations in telecommunications abstract by introducing the concept of innovation regimes the aim of this article is to show how the rapid pace of technological development in the telecom sector may be explained by the close links between the sector s own r d and the creation of numerous innovations many of which are radical in contemporary innovation theory a theoretical antinomy exists whereas the creation of incremental innovations is variously explained in terms of rational responses to markets dynamics of technological regimes dominant design etc radical innovations in contrast are explained in terms of serendipity chance or haphazard scientific discoveries evidence from analysis of innovations in the telecom sector suggests that innovation regimes have provided a capability of coordination direction and leadership in the creation of many of the radical technological innovations that have emerged in the sector thus one may claim that the strong innovation regimes and high r d intensity of the telecom sector at least until recently have provided a capability of creating innovations on purpose for a purpose the policy implications of this contradict some of the assumptions on which the prevailing market oriented r d governance models and policies are based and which are supported by contemporary innovation theories

price competition and compatibility in the presence of positive demand externalities in many cases the benefit to a consumer of a product increases with the number of other users of the same product these demand interdependencies are referred to in the literature as positive demand externalities or network externalities this paper examines the dynamic pricing behaviors of an incumbent and a later entrant with special attention to the impacts of demand externalities compatibility and competition on prices and profits defining market power as the ability to price above a competitor without losing market share we show how demand externalities and installed base combine to confer market power we model optimal pricing as a differential game with the optimal price trajectory established as nash open loop controls for a duopoly durable goods market with strong demand externalities the results show an increasing price trajectory can be optimal as expected a new entrant is better off if its products are compatible with those of the incumbent especially when demand externalities are strong and the installed base of the incumbent is large less intuitively the incumbent as well may be better off agreeing on common standards the comparison of monopoly and duopoly shows that under strong demand externalities and a small installed base the incumbent profits from compatible entry

competition in durable goods markets the strategic consequences of leasing and selling in marketing durable goods manufacturers use varying degrees of leasing and selling to consumers e g cars photo copiers personal computers airplanes etc the question that this raises is whether the distinction between leases and sales is simply one of price or whether the proportion of leases and sales effects a firm s ability to compete in the market in this paper we use two approaches to argue that leasing and selling create strategic consequences that extend beyond prices first we develop a stylized theoretical model that shows that the optimal proportion of leases and sales depends on the competitiveness of the market and on the inherent reliability of the firm s product and second we find support for the implications of our theoretical model with data from the automobile industry the u s automobile industry has seen a large increase in leasing over the last five years however the extent to which leasing has been embraced varies widely across manufacturers for example in 1993 the sport utility segment had the following lease percentages ford explorer 29 jeep grand cherokee 24 toyota 4 runner 11 and chevrolet blazer 9 in addition manufacturers often vary lease percentages across models for example in 1993 ford leased 22 of its crown victoria model 35 of its taurus model and 42 of its probe model a popular argument for why we see these differences is that higher priced cars are leased more often because leasing makes them more affordable however this rationale is not compelling in the face of our data for example the ford probe was priced significantly lower than the crown victoria and yet it was leased almost twice as often to develop a better understanding of why we observe differences in the proportion of leasing we develop a two period model of a duopoly in which each manufacturer chooses its optimal quantity and the fraction of units it wants to lease we find that in equilibrium neither firm leases all its units either they use a mix of leasing and selling or they use only selling our analysis suggests that the fraction of leased cars decreases as the manufacturers products become more similar and the competition between them increases the intuition for this result is that a higher fraction of leases puts the firm at a competitive disadvantage in the future this occurs because unlike firms that sell their product firms that lease are at a price disadvantage another important finding in this paper is that the extent of leasing chosen by a manufacturer depends on the reliability of its product in particular all else being equal the lower a product s reliability the lower its proportion of leases within the context of the automobile industry this suggests that more expensive cars may be leased more often because they are of higher quality and not necessarily because they are more expensive finally we test the implications of our theoretical model with data from the u s automobile market in particular for 1993 model year cars we develop a measure of reliability using data from consumer reports in addition we develop a measure of the extent of competition in each segment of the automobile market we support our hypotheses by finding that the extent to which a car model is leased depends strongly on its predicted reliability and on the competitive intensity within the segment

cyclic pricing by a durable goods monopolist in the model of this paper a monopoly seller of a durable good holds periodic sales as a means of price discrimination a new cohort of consumers enters the market in each period interested in purchasing the good either immediately or after a delay within each cohort consumers vary in their tastes for the good under broad conditions the seller will vary the price over time in most periods he will charge a price just low enough to sell immediately to consumers with a high willingness to pay periodically however he will drop the price far enough to sell to an accumulated group of consumers with a low willingness to pay

returns policies between channel partners for durable products many durable products with relatively short selling seasons have been using returns policies between manufacturers and retailers as the contractual protocol for some time recently these sectors have witnessed the growing popularity of peer to peer web based used goods markets as important transaction channels between buyers and sellers given that these two issues are critically linked from both supply and demand perspectives in this paper we study the role that consumer valuation of used products plays in shaping a manufacturer s incentive to offer a returns policy option to a retailer when used goods might be devalued compared to new ones as a result of physical deterioration or obsolescence we do so through a two period dyadic channel framework where the retailer faces uncertain demand for a durable product from a renewable set of customers who are impatient but forward looking the manufacturer on the other hand needs to decide whether or not to offer a returns contract to the retailer we first characterize the necessary and sufficient condition under which a returns contract is the equilibrium strategy as well as the corresponding channel decisions further analysis of this condition reveals that a higher consumer valuation of used products increases the likelihood of a returns contract being the equilibrium strategy this result seems to be robust except when the potential demands for the two periods are quite deterministic and uncorrelated however it contradicts the burgeoning managerial trend to replace returns contracts with price only ones in sectors where used goods are valued relatively highly by the consumers we also discuss how used goods markets affect the equilibrium channel decisions as well as how demand uncertainty and logistics costs associated with returns influence the equilibrium contracting strategy

religion liberty and economic development an empirical investigation the empirical investigations conducted for this paper show that one can not accept the null hypothesis that religion and liberty are not related to development judeo christianity in particular appears to an important determinant of economic development this is explained in part by its fostering of the private ownership of property nations with the judeo christian values are more likely to have political democracies that are conductive to economic development capitalist economies with judeo christian democracy are more likely to have higher levels of economic development

do converters facilitate the transition to a new incompatible technology a dynamic analysis of converters abstract this paper analyzes the process of transition in standards between incompatible technologies when converters are available contrary to a common presumption that converters facilitate the transition from an old technology to an otherwise incompatible new technology i find circumstances in which the possibility of transition is blockaded by the existence of converters in the welfare analysis of converters a distinction is made between ex ante and ex post efficiency effects finally i also analyze the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

cultural and institutional determinants of economic growth a cross section analysis economic growth rates for the period 1968 1987 are analyzed for ninety countries culture political and economic arrangements and personal freedoms are statistically significant determinants of growth personal freedom is shown to be a normal good whose demand might be affected by cultural influences democracies raise personal freedoms ceteris paribus and consequently grow more quickly than non democratic regimes evidence is found for the convergence hypothesis other things equal lower income countries grow more rapidly than higher income countries

the king and i monarchies and the performance of business groups large highly diversified business groups are a prominent feature of the industrial landscape of most emerging economies their competitiveness has been the topic of much debate in the international business literature this paper intervenes in this debate by utilising data from thailand and demonstrating that whereas business groups create value by filling institutional voids the political context of a country and the investment of powerful actors in particular groups can cause great variance across business groups performance copyright oxford university press

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

concurrent renting and selling in a durable goods monopoly under threat of entry this article analyzes the choice of contract sales or rental of a durable goods monopolist facing a threat of future entry although in the absence of such a threat a monopolist would prefer to rent his entire output we show that the threat of entry alters that preference there is an optimal preentry contract mix involving both rental and sales if both firms behave as cournot duopolists after entry the optimal choice of preentry contracts enables the erstwhile monopolist to gain the same profits as he would if he behaved as a von stackelberg leader

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

coase revisited business groups in the modern economy ronald coase s celebrated query as to why economic actors typically aggregate into entities called firms rather than transacting as individuals in a market has engendered a vigorous stream of research this paper asks a parallel question why is it that in all modern economies firms themselves aggregate into larger entities often more stable than any literature predicts which are here referred to as business groups after establishing some working definitions and discussing the curious conjunction of empirical importance and analytical invisibility of business groups an attempt is made to establish the most significant dimensions along which such groups vary we end with some speculations on the role of these groups in economic development copyright 1995 by oxford university press

can repressive regimes be moderated through foreign aid in what circumstances should foreign aid be given to less developed countries with repressive rulers repressive rulers are assumed to control the national income and to trade it against the probability of staying in office which is assumed in turn to depend positively on popular wealth and repression a foreign donor aware of this process of optimization will pursue his international objectives by attaching conditions to his aid that alter the relative price of repression and popular wealth in the calculations of the tyrant the effectiveness of direct and in kind aid and the desirability of a carrot an stick aid policy depend on the direct and the interactive effects that popular wealth repression and the parameters of economic growth exert on the regime s stability and its level of income

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

product line decisions and the coase conjecture we show that the coase conjecture does not hold when a durable goods monopolist also sells nondurable goods that are demand related to the durable the presence of nondurable complements or substitutes reduces the rate at which the monopolist introduces the durable into the market the price of the durable does not converge to marginal cost we analyze the incentives of a monopolist to extend his product line to a durable or a nondurable most significantly the profit from adding a durable to the product line disappears as the time between offers becomes short we study the effects of entry into markets for nondurables and their implications for merger policy

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

bringing history back into international business we argue that the field of international business should evolve its rhetoric from the relatively uncontroversial idea that history matters to exploring how it matters we discuss four conceptual channels through which history matters illustrating each with a major example first historical variation is at least a worthy complement to contemporary cross sectional variation in illuminating conceptual issues as an example we show that conclusions reached by the literature on contemporary emerging market business groups are remarkably similar to independently reached conclusions about a very similar organizational form that was ubiquitous in the age of empire second historical evidence avoids spurious labeling of some phenomena as new and by so doing may challenge current explanations of their determinants whereas some firm types today were also present earlier some types have disappeared some have appeared and some have disappeared and reappeared later third history can allow us to move beyond the oft recognized importance of issues of path dependence to explore the roots of penrosian resources we argue that the choices made by jardine s and swire s in asia today for example are an outgrowth of strategic choices first in evidence more than a century ago these would remain obscured absent an historical analysis fourth there are certain issues that are unaddressable except in the really long that is historical run exploring the causal relationship if any between foreign direct investment a staple of the international business literature and long run economic development provides one important example throughout we advocate embracing rigorous methods for analyzing small sample and qualitative data when conventional regression techniques do not apply that is we suggest that re embracing history in the mainstream is not tantamount to sacrificing methodological rigor

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

the provision of two way converters in the transition process to a new incompatible technology this paper analyzes the dynamic provision of converters in the transition process between two incompatible technologies i derive the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome i find that there can be two types of market inefficiency in the provision of converters first converters can be supplied by the wrong group second the timing of provision may be too late since the providers of converters ignore the positive externality that their provision would confer on the users of the rival technology

social learning and dynamic pricing of durable goods we analyze the impacts of social learning sl on the dynamic pricing and consumer adoption of durable goods in a two period monopoly consumers can make either early uninformed purchases or late but potentially informed purchases as a result of social learning several results are derived first we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times second equilibrium adoption may demonstrate inertia where all adopt late or frenzy where all adopt early in particular adoption inertia appears when sl intensity is reasonably high but may vanish when sl intensity exceeds a certain threshold third firm profits and social welfare first weakly decrease in sl intensity and may then jump up by a lump sum amount at the threshold sl intensity level mentioned above last we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning

durable goods monopolists rational consumers and improving products we consider the case of a monopolist supplying an improving durable product to a population that is heterogeneous in its valuation of product quality in a two period framework we show that if consumers expect the product to improve in present value terms then intertemporal discrimination might result in the first period marginal consumer being left with zero surplus and some higher end consumers postponing purchase the resulting trajectories for quality and price do not constitute a subgame perfect equilibrium one of our conclusions is that the logic of profit maximization in the context of rational consumer choice imposes a demand side constraint on the rate of product improvement we also emphasize the disequilibrium consequences of improving a product so rapidly that high end consumers are tempted to wait for a future new and improved version finally the formulation adopted in the paper may be useful to understand observed differences in product improvement rates in different markets

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

network externality compatibility choice and planned obsolescence this paper attempts to provide a formal theory of planned obsolescence based on incompatible technologies in the presence of network externalities the author explores how a monopolist s ability to make the new product incompatible with the old version of a product constrains the optimal dynamic behavior of the monopolist the social optimum and the market equilibrium are compared finally the possibility of quality distortion is considered as a commitment mechanism to the future compatibility choice copyright 1994 by blackwell publishing ltd

strategy structure and performance of korean business groups a transactions cost approach the authors use the transactions cost approach to analyze the diversification strategy and the resulting structure chosen by korean business groups to overcome market imperfections prevalent in developing countries business groups that have multidivisional struc ture are thought to show superior economic performance because such s tructure reduces transactions costs arising from organizational failure also major korean business groups have a relational structure showing both vertical integration and the characteristics of the conglomerate the authors modify the model of r e caves and m uekusa 1976 used for japan to obtain the empirical result tha t group affiliated firms show superior economic performance copyright 1988 by blackwell publishing ltd

estimating the performance effects of business groups in emerging markets business groups confederations of legally independent firms are ubiquitous in emerging economies yet very little is known about their effects on the performance of affiliated firms we conceive of business groups as responses to market failures and high transaction costs in doing so we develop hypotheses about the effects of group affiliation on firm profitability affiliation could either boost or depress firm profitability and members of a group are likely to earn rates of return similar to other members of the same group using a unique data set compiled largely from local sources we test for these effects in 14 emerging markets argentina brazil chile india indonesia israel mexico peru the philippines south africa south korea taiwan thailand and turkey we find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine group affiliation appears to have as profound an effect on profitability as does industry membership yet strategy scholars have a much clearer grasp of industries than of groups moreover membership in a group raises the profitability of the average group member in several of the markets we examine this runs contrary to the wisdom conventional in advanced economies that unrelated diversification depresses profitability overall our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts conclusions drawn in one context may well not apply to another copyright 2001 john wiley sons ltd

currency competition network externalities and switching costs towards an alternative view of optimum currency areas existing models of currency competition and monetary union ignore network effects and switching costs this paper develops a simple model that incorporates these features and shows how it can be used to shed light on observed monetary experience and current issues in international monetary relations it explains why agents will often be reluctant to switch currencies highlights the role of expectations and sheds light on the nature of currency competition and the effect of legal restrictions copyright 1993 by royal economic society

the diffusion of clean technologies a review with suggestions for future diffusion analysis abstract this article gives an overview of the literature on clean technology diffusion followed by suggestions for future analysis findings from diffusion analysis are presented in the form of 10 stylised facts helping the reader to see the forest for the trees the overall conclusion is that the diffusion of clean technology same as the diffusion of normal innovations is governed by endogenous mechanism epidemic learning and learning economies and by exogenous mechanisms policy is important for clean technology diffusion but other factors are important too the characteristics of the clean technology absorptive capacities of potential adopters and the age structure of capital it is often overlooked that companies have a choice they can choose between an end of pipe solution a process change adaptation and a change of process substitution this means that the diffusion and evolution of one clean technology will be at the expense of the diffusion of another clean technology something overlooked in studies on clean technology diffusion further research is needed on the influence of public policy on clean technology choice expectations about learning economies and prices adjustment costs network externalities and complementary innovations on clean technology adoption choices

the debt wish rent seeking by business groups and the structure of corporate borrowing in india business groups play an important role in emerging economies the transactions cost perspective which has dominated our understanding of such groups argues that the emergence of business groups is a natural response to market failures in developing countries in this paper we propose an alternate theoretical perspective the rent seeking view that takes these groups as engaging in coordinated lobbying for the capture of rents created by governments we develop and implement an empirical strategy to test for the rent seeking view drawing from the property rights theory of corporate finance we find strong empirical support for the rent seeking view using a large cross sectional data set of firms in india

technology revolutions in the presence of network externalities abstract the purpose of this paper is to investigate the effect of varying consumer preferences over technology advance and network size on the timing and frequency of new technology adoption in the presence of installed bases resulting from network externalities the paper shows that the duration of each adopted technology and the frequency of technology adoptions depend on a whether in consumers perspectives the network size effect is a substitute for or a complement to the quality of the technologies b the degree of compatibility of new technologies with the old technology and c the technology growth rate and consumer population size

pricing for a durable goods monopolist under rapid sequential innovation a durable goods monopolist who will be introducing new and improved versions of his product must decide how to price his products keeping in mind the relative attractiveness of the current and future products dhebar 1994 has shown that if technology is changing too quickly and the producer cannot credibly commit to future prices and quality then no equilibrium strategy exists that is there is no credible strategy for the future product that the producer can commit to in the first period we show that an equilibrium pricing strategy exists if the monopolist does not offer upgrade pricing that is special pricing to consumers who have bought an earlier version the author shows the possible purchase patterns in equilibrium and derives the optimal pricing strategy

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

the welfare implications of unauthorized reproduction of intellectual property in the presence of demand network externalities this paper finds that unauthorized reproduction of intellectual property in the presence of demand network externalities can not only induce greater firm profits relative to the case where there is no copying it can lead to a pareto improvement in social welfare ceteris paribus when network externalities are present firms have a greater incentive to expand output because marginal revenue is higher and or they may wish to create preemptive installed bases this paper suggests that unauthorized copying can be a relatively efficient means of achieving this by allowing the firm in effect to price discriminate among different classes of consumers copyright 1994 by blackwell publishing ltd

durable products time inconsistency and lock in many durable products cannot be used without a contingent consumable product e g printers require ink ipods require songs razors require blades etc for such products manufacturers may be able to lock in consumers by making their products incompatible with consumables that are produced by other firms we examine the effectiveness of such a strategy in the presence of strategic consumers who anticipate the future prices of both the durable product and the contingent consumable under a lock in strategy the manufacturer has pricing power over the contingent consumable which she can use to extract additional rents from higher valuation consumers but such pricing power may also reduce consumers willingness to pay for the durable because it subjects them to being held up with higher consumables prices in the future restricting our attention to linear pricing policies we find that if the manufacturer can commit to shutting down production of her durable after an initial one time sale then competition from another consumable of an appropriately degraded level of quality can benefit the manufacturer by mitigating consumers fears of being held up on the other hand when the manufacturer cannot commit to shutting down production of her durable then her own output of additional durables gives her an incentive to keep consumables prices low and competition in the consumables market is less beneficial this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

pricing information goods a strategic analysis of the selling and pay per use mechanisms we analyze two pricing mechanisms for information goods these mechanisms are selling where up front payment allows unrestricted use and pay per use where payments are tailored to use we analytically model a market where consumers differ in use frequency and where use on a pay per use basis invokes a psychological cost associated with the well known ticking meter effect we demonstrate that pay per use yields higher profits in a monopoly provided the associated psychological cost is low in a duopoly one firm uses selling and the other uses pay per use here in contrast to the monopoly selling yields higher profits than pay per use we demonstrate that surprisingly the profits of both duopolists can increase as the psychological cost associated with pay per use increases next we show that uncertainty in consumer use frequency does not affect pay per use in a monopoly but lowers profits from selling in a duopoly both the seller and the pay per use provider obtain lower profits when use frequency is uncertain we also analyze how pricing mechanism performance is affected if the firms cannot commit to prices if the pay per use provider offers a two part tariff and if consumers are risk averse

commentaries and rejoinder to measuring the impact of negative demand shocks on car dealer networks by paulo albuquerque and bart j bronnenberg this series of discussions presents commentaries and a rejoinder on strategic and managerial issues arising from albuquerque and bronnenberg albuquerque p b j bronnenberg 2012 measuring the impact of negative demand shocks on car dealer networks marketing sci 31 1 4 23

modeling the evolution of markets with indirect network externalities an application to digital television the usefulness of a technology product for an end user often depends on the availability of complementary software products and services computers require software cameras require film and dvd players require movie programming in order for customers to value the whole product this phenomenon where the demand for hardware products is mediated by the supply of complementary software products is called an indirect network externality indirect network externalities create a two way contingency between the demand for the hardware product and the supply of software products and result in a strategic interdependence between the actions of hardware manufacturers and the actions of software providers indirect network externalities are gaining economic significance in technology markets because hardware and software are typically provided by independent firms and both sets of firms have an incentive to free ride on each others demand creation efforts despite the ubiquity of this phenomenon it has largely been ignored in the marketing science literature we present a conceptual and operational model for the evolution of markets with indirect network externalities the key feature of our framework is to model the market mediated dependence between the actions of hardware manufacturers and software complementors created by the direct dependence of consumer demand for the whole product on the actions of manufacturers as well as complementors in addition we incorporate marketing mix effects on consumer response aswell as heterogeneity in consumer preferences for hardware and software attributes we model consumer response usinga latent class choice model to estimate the complementor response functions we use a modified delphi technique that allows us to convert qualitative response data into quantitative response functions we integrate the consumer and complementor response models to create a simulation modelthat generates forecasts of market shares and sales volumes for competing technologies as a function of marketing mix effects and exogenously specified regulatory scenarios the modeling framework is of interest to new product modelers interested in creating empirical models and decision support systems for forecasting demand in technology markets characterized by indirect network externalities the decision support aspects of the modeling framework should appeal to managers interested in understanding and quantifying the complex interplay between hardware manufacturers and software complementors in the evolution of markets with indirect network externalities we present an application of the modeling framework to the u s digital television industry and use the framework to characterize the competition among analog and digital tv technologies our results suggest that complementor actions play an important role in the acceptance of digital tv technologies in general and high definition television hdtv in particular we find that forecasts that ignore the influence of indirect network externalities would be seriously biased in favor of hdtv we illustrate how the modeling framework can be used to identify and profile customer segments in the digital tv market based on their utility for hardware related features as well as programming related features we also illustrate the decision support capabilities of the modeling framework by evaluating the sensitivity of the forecasts to varying marketing regulatory and complementor response scenarios we derive implications for marketing and public affairs policies of the hardware manufacturers the developments in the digital tv industry generally support our finding that hdtv will be a niche product and will diffuse slower than originally expected due in part to the lack of programming the delays in the introduction of digital tv to the marketplace also suggest that most forecasts for infrastructure intensive technologies like digital tv may be too optimistic simply because they underestimate the delays in agreeing upon technology standards and resolving regulatory debates

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the city network paradigm measuring urban network externalities in recent years network behaviour has been analysed extensively as the emerging model for economic growth by network behaviour a metaphor for co operative behaviour among individuals corporate

inefficient standard adoption inertia and momentum revisited i introduction since the establishment of the theory of network effects economists have been concerned with the question of whether a market with network effects will tend to settle on the socially optimal standard it has been postulated that markets may exhibit excess inertia once a technological standard is in place a new superior standard may not displace it because of installed base effects alternatively markets may exhibit excess momentum consumers may adopt a new standard too quickly ignoring the stranding effect they are having on previous users similar issues arise in the adoption of language and social norms the literature has investigated various conditions under which one of these inefficiencies arises such inefficiencies are of particular concern for open technologies such as the qwerty and dvorak keyboards 1 the situation is somewhat different when individual firms own standards in that case a simple argument seems to indicate that there is no possibility that an inefficient standard will persist if a new standard is superior in any objective sense there are gains to be made from switching to it once the standard has been adopted the firm can appropriate these gains therefore the firm has incentive to lower the initial price enough to induce adoption of the standard the preceding argument is made in liebowitz and margolis 1999 and repeated in spulber 2002 spulber expresses a general skepticism about the likelihood of inefficiencies when property rights are defined and markets exist critics might claim that previous models that imply inefficient standard adoption are unrealistic in some way and that if such models were modified slightly the inefficiency would disappear i reconsider the issue of inefficient standard adoption using a parsimonious yet compelling model assuming only that there are successive generations of finitely lived consumers that preferences are heterogeneous and that there are network effects among users adoption decisions can be inefficient this is true even if consumers can coordinate efficiently within a generation and a firm can act as a coordinating device across generations the model presented here generates some of the same results found in other papers collectively but in a more general setting and with more robust results if there is an established standard and a superior alternative emerges no single generation of consumers will be willing to switch to the new standard if the switching cost the loss of network benefit from breaking with past users is too high it may be that the benefits to future generations of consumers are large enough that from a social standpoint it would be efficient for one generation to adopt the new standard even if it is privately optimal for that generation to retain the old standard on the other hand the current generation considers only its own switching cost and not the cost it imposes on the previous generation leading to potential overadoption of new technology even for proprietary standards it is not clear that the incentive of the firm to induce adoption matches the social incentive in particular if consumer preferences are heterogeneous the firm will not be able to price in such a way to extract all of the additional surplus gained from the new standard on the other hand the firm will be able to appropriate some of the surplus generated by the network effect itself which is present for any standard and thus does not affect the social incentive to change standards it is not possible to address this issue with a two period model as in some of the previous literature see for example choi 1994 choi and thum 1998 katz and shapiro 1986 if a new technology is introduced in the second period but then the game ends the welfare of future generations of consumers is neglected 2 this article also differs from previous infinite horizon models of technology adoption

network effects and environmental externalities do clean technologies suffer from excess inertia abstract we study the diffusion of a clean substitute to a dirty durable in a dynamic model consumer utility of both durables increases in their respective market shares due to network effects first we characterize the optimal dirty good tax the tax should achieve a long run optimal division of the market between the two goods along the transition path to this steady state the optimal tax depends on the current and future market shares of the clean durable thus even if the marginal environmental damage from an additional dirty durable is constant the optimal tax should not be constant second we study whether excess inertia can occur if the emission tax is not optimally set we then find that a constant tax that only accounts for the environmental damage caused by the dirty good may lead to excess inertia excess inertia could happen even if the clean technology is proprietary and the technology owner has incentives to sponsor the initial market diffusion of the technology

technology choice and timing with positive network effects abstract when two competing and incompatible products coexist in a market potential users face a choice between the two products and the alternative of deferring the decision this paper examines the choice between the two substitutes where each one is subject to a positive network effect that is a user of one of the products experiences an increase in the value for each additional person using the same product we examine this buy or wait problem either for an individual or a manager making the investment on behalf of a firm by formulating and analyzing a decision theoretic model to model the stochastic evolution of market share we build on the generalized polya urn of arthur et al arthur w b ermoliev y m kaniovski y m 1987 path dependent processes and the emergence of macro structure european journal of operational research 30 3 294 303 allowing for composition of the market to affect not just the relative market shares but also the absolute growth rate of the market we show that the optimal strategy is defined by a pair of market penetration thresholds that depend on the market composition looking at the effect of the network effects on the optimal strategy we find that more pronounced network effects can either raise or lower the penetration thresholds

engineering growth business group structure and firm performance in china s transition economy business groups have received increasing attention from academics interested in interorganizational relations and their impact on firms as part of industrial reform the chinese government began in the mid 1980s to encourage firms to form business groups with structural characteristics that promised to enhance financial performance and productivity using 1988 90 panel data on china s 40 largest business groups and their 535 member firms the study finds that the presence and predominance of interlocking directorates and finance companies in business groups improved the financial performance and productivity of the groups member firms in addition firms in groups with nonhierarchical organizational structures performed better than firms in hierarchical groups suggesting that complete integration into a hierarchical organization is not an optimal strategy

durable goods monopoly with discrete demand we analyze a dynamic game between consumers and the sole seller of a durable good unlike previous analyses we assume that there exists a finite collection of buyers rather than a continuum none of the main conclusions of the literature on durable goods monopoly survives this change in assumption coase s conjecture that a durable goods monopolist cannot earn supracompetitive profits in the continuous time limit bulow s proposition that renting a durable is always more profitable than selling it and stokey s proposition that precommitting to a time path of prices is always optimal are all false when the set of buyers is finite thus the assumption of a continuum of consumers so innocuous and useful a simplification in other contexts has proved misleading in the context of durable goods monopoly

durable good monopolies with rational expectations and replacement sales a monopoly producer of a durable good is examined under the previously uninvoked assumption that the good depreciates and hence that replacement sales must occur if a fixed stock of the good is to be maintained we find two ways in which the no depreciation result that the monopoly will always at least eventually produce a stock equal to that produced by a competitive market may not hold if the length of the trading period is nonzero the limiting stock produced by the firm will be lower than the competitive stock to ensure the profitability of future replacement sales if the firm is able to constrain its production capacity it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock

hardware quality vs network size in the home video game industry abstract this paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers a discrete choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities empirical evidence supports the claim that excess inertia is not a pervasive problem two data sets covering the life of the home video game industry yearly from 1976 to 2003 and monthly january 1995 to october 2007 yield three main results 1 market share is 11 4 times more sensitive to hardware quality than network size 2 the number of available games is 3 69 times more sensitive to hardware quality than network size and 3 hardware quality has a larger impact than network size on the probability of hardware success

modifying customer expectations of price decreases for a durable product we study the introductory signalling strategy for a durable product that faces optimistic expectations among customers about price declines over time the firm introducing the product knows that experiential learning is low for the product however customers being uncertain about the extent of experiential learning assign a nonzero probability that the firm s new product will enjoy a high cost reduction with cumulative experience the optimistic expectations of customers reduce their willingness to pay a high price at the product s introduction while predisposing them to buying later the challenge facing the low experience firm is to choose an introductory strategy that will credibly convey the low experience curve effect to customers we use the sequential equilibrium concept in a game theoretic framework to identify the firm s signalling strategy we identify the unique separating equilibrium of the game after refining the set of separating equilibria we demonstrate that a high introductory price credibly signals the low experiential learning to customers we also show that signalling causes an artificial learning curve effect

preying for monopoly the case of southern bell telephone company 1894 1912 focusing on the southern bell telephone company we propose a modified version of the predation hypothesis to explain bell s natural monopoly over local telephone service southern bell effectively eliminated competition through a strategy of pricing below cost in response to entry which deprived competitors of the cash flow required for expansion even if it failed to induce exit investing in toll lines ahead of demand isolating independent companies in smaller towns and rural areas and forcing them to consolidate on favorable terms and influencing local regulatory policy in large cities to weaken rivals and ultimately to institutionalize the bell monopoly

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not

obtaining strategic advantage from being imitated when can encouraging clones pay an important business strategy research theme concerns finding ways to minimize competition faced by the firm this paper however focuses on a different set of situations the model developed suggests that an innovator s best strategy may be to encourage clones of its product when a network externality is present key factors to consider in assessing whether encouraging cloning is the innovator s best strategy are 1 the benefit to be derived in terms of added user base contributed by the clone sales traded off against 2 the unit sales that will be lost to the clones these factors in turn depend upon the strength of the network effect and the degree to which the innovator s product quality is perceived by consumers to be superior to the clone s the model further suggests that both the innovator and clone earn their highest payoffs when the clone takes the lead in price setting i e when the clone establishes its own price by considering for each price it might set how the innovator will react to that price and the innovator as price follower responds to the price the clone chooses the paper demonstrates that the clone leader innovator follower situation represents the unique nash equilibrium in price setting strategies a central implication is that when operating in a network externality environment instead of a problem to be avoided clones may be valuable assets to an innovating firm building up the user base for the innovator s technology by bringing lower valuing consumers into the market which in turn makes the innovator s product more attractive to high and medium valuing purchasers thus when the above described conditions hold being cloned can be more profitable for an innovating firm than dominating the market alone

selling and leasing strategies for durable goods with complementary products it has been recognized that when a durable goods manufacturer sells its output it has an incentive to produce at a rate that will drive down the market price of the product over time because anticipation of declining prices makes consumers less willing to invest in owning the durable good selling can be self defeating for the manufacturer if the manufacturer instead leases the product it can eliminate its own incentive to decrease the price over time which allows it to extract larger rents from consumers in this paper we investigate how a durable goods manufacturer s choice between leasing and selling is affected by a complementary product that is produced by an independent firm we show that a durable goods manufacturer that leases its product has an incentive to increase prices by limiting the availability of the product in response to the availability of a complement because this potential for opportunistic behavior discourages output of the complement leasing can also be problematic as a result the durable goods manufacturer faces a trade off between leasing which commits the manufacturer to not overproduce and selling which commits it to not underproduce our contribution is to identify this trade off and show how a durable goods manufacturer can use a combination of leasing and selling to balance its strategic commitment across both its own market as well as the complementary market

on the interplay of informational spillovers and payoff externalities this thesis consists of four independent essays which consider different topics in information economics and political economy the first two papers are variants of the same idea an uninformed principal e g a government will make a decision in order to gain more information it may consult two experts however these experts have a private interest in certain policies being implemented the question is to gain as much information as possible should the principal consult experts who are biased in the same direction or experts who prefer different decisions the main result is that as long as collusion between experts can be prevented homogeneous panels are superior to heterogeneous ones and this advantage increases with the experts informational precision in the third paper two firms consider entry in a new product market and must decide when to enter the market and how to design their product firms do not know for certain what the best design is so both firms want to outwait the other s decision in order to gain more information the focus of the paper is on which firm will make the first decision the main result is that if products are strong strategic substitutes the worst informed firm makes the first decision in equilibrium the analysis should apply to a range of other contexts such as investors trading decisions or the policy choices of political candidates the final paper asks the following question could it be that parties in a two party system may benefit from using several candidates in the same election to promote the use of multiple candidates i assume that a party never runs the risk of having its votes split up among its candidates despite this it turns out that parties have a strong incentive to restrict their number of nominees paradoxically it seems that the more uncertain parties are about voter opinion the fewer candidates they want to use in particular with a uniform voter distribution the optimal number of candidates is one

optimal patenting and licensing of financial innovations recent court decisions starting with the state street decision in 1998 allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations this new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management what to patent we present a parsimonious decision framework that answers this question we show that for innovations with certain characteristics it is optimal not to patent even if the option of patenting and licensing is available our model emphasizes the role of embedded real options that arise from certain types of financial innovations the model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations including swaps credit derivatives and pricing algorithms