Volume 18, Issue 2
Sang-Seung Yi and Hyukseung Shin
"Endogenous formation of research coalitions with spillovers"
Abstract: We examine the endogenous formation of research coalitions set their R&D investments in order to maximize the aggregate profits of members of their coalition. The Exclusive Membership rule supports a more "concentrated" coalition structure and thus leads to higher industry R&D investments for high spillovers than the Open Membership rule does. However, due to free-riding problems, the grand research coalition, which is the socially efficient outcome, is rarely an equilibrium outcome under either rule. Our results suggest that government subsidies to research consortia for basic research with high spillovers can improve social welfare by encouraging wider participation to a research consortium, that is, by alleviating free-rider problems in coalition formation. From a more theoretical viewpoint, our results on stable coalition structures are applicable to a wide variety of economic coalitions with positive externalities.
"Strategic alliances as Stackelberg cartels - concept and equilibrium alliance structure"
JEL codes: D21, D43, L13, L41
Abstract: This paper analyzes incentives of oligopolistic firms to form strategic alliances and the effects of the endogenously derived alliance structure on product market competition. A three-stage game is considered: in the first stage firms decide about forming strategic alliances, in the second stage each alliance designs a strategic contract, and in the third stage alliance members and outsiders compete in the product market. It is shown how contractual terms about transfer prices and profit sharing in a production joint venture for an intermediate product may serve as an appropriate commitment device. Profits of alliance members and outsiders under different alliance structures are then determined. Based on this profit structure, the alliance formation process is analyzed. In a linear Cournot oligopoly with at most five firms only one alliance forms and industry output is reduced. With more than five firms an alliance structure with at least two alliances results if an equilibrium of the alliance formation game exists and in this case competition is enhanced.
"Research joint ventures and optimal R & D policy with asymmetric information "
Abstract: Allowing research joint ventures or not is an important element in constructing an optimal R & D policy. The regulator, however, is unlikely to know all the relevant information to regulate R & D optimally. The extent to which there are appropriability problems is one such variable that is private information to the firms in the industry. In a duopoly setting we analyze the characteristics of a first-best and second-best R & D policy where the government can either allow research joint ventures or not and give lump-sum subsidies to the parties involved. The second-best R & D policy improves upon the policy of an unsophisticated government by integrating reports of the firms on their spillovers and the correlation between the R & D spillovers of the firms into its policy formulation.
"Second-mover advantages in the strategic adoption of a new technology under uncertainty"
JEL codes: L13; O31; O32
Abstract: This paper introduces technological uncertainty into a timing game of new technology adoption. It is shown that the timing neither necessarily involves first-mover advantages in precommitment equilibria (Reinganum, 1981) nor rent-equalization due to the threat of preemption (Fudenberg and Tirole, 1985). Rather, there may be second-mover advantages because of informational spillovers. Furthermore, the model predicts that the equilibrium payoffs will typically be discontinuous and non-monotonic in the probability that the new technology is profitable. A welfare analysis reveals several market failures, and suggests that policy intervention should adequately depend on the nature of uncertainty and the rate of technological progress.
Maria-Luisa Petit& Francesca Sanna-Randaccio
"Endogenous R&D and Foreign Direct Investment in International Oligopolies"
JEL codes: F23; L10; O34
Abstract:This paper examines the impact of the firm's mode of foreign expansion on the incentive to innovate as well as the effects of R&D activities and technological spillovers on the firmsī international strategy. We consider a two country imperfect competition model where the firms face three different type of decisions: how to expand abroad, how much to spend in R&D and how much to sell in each market. Market structure is therefore endogenously determined as the equilibrium solution of a three stage game. It is shown that the firm that invests more in research is the one which is a MNE while the rival is an exporter, whereas the firm that invests less is the one that exports while the rival is an MNE. The results indicate that there is a positive relationship between multinational expansion and R&D investment and that, in turn, investment in research leads oligopolistic firms towards multinational expansion. The value of the spillover parameter too can be an important determinant of firms' international strategy.
"Strategic timing of adoption of new technologies under uncertainty: a note"
JEL codes: O31, O32
Abstract: This note clarifies the circumstances under which ex ante identical firms will choose different dates for the adoption of new technology. In particular, conditions under which 'diffusion' will arise in both open-loop and closed-loop games are identified. Furthermore, it is shown that the rents of nonidentical firms are not equalized, even if pre-emptive adoption is possible. Finally, an example is given in which the reduction of the uncertainty associated with the implementation of new technology leads to a postponement of the adoption by the late adopter.