Market Share, R&D Cooperation, and EU Competition Policy

Current EU policy exempts horizontal R&D agreements from antitrust con- cerns when the combined market shares of participants are low enough. This paper argues that existing theory does not support limiting the exemption to low market shares. This is done by introducing a set of non-innovating outside firms to the standard framework to assess what link might exist between the market share of innovating firms and the product market benefits of cooperation. With R&D output choices, the market share criterion, while it rules out the most socially harmful R&D cooperation agreements, also hinders the most beneficial ones. With R&D input choices, cooperation may actually be desirable in concentrated industries, and harmful in more competitive ones. If R&D cooperation does have anti-competitive effects in product markets, it seems that these are therefore best addressed by other tools than market share criteria.R&D; Cooperation; Competition; Regulation

Horizontal R&D Cooperation and Spillovers: Evidence from France

We use the French portion of the 2002 Community Innovation Survey to test how spillovers a®ect the likelihood that ¯rms cooperate in R&D. Unlike most existing empirical studies, our results clearly support well-established theoretical predictions of the industrial organization literature. We find that a firm which benefits from higher spillovers from her rivals is more likely to cooperate horizontally in R&D. Moreover, the impact of incoming spillovers on the likelihood of horizontal R&D cooperation is positive and statistically significant only when they are above a threshold. Both the value, and the precision of the estimates, increase with the information flow which firms report receiving from their competitors.cooperation ; research and development ; spillovers

Cumulative Leadership and Entry Dynamics

This paper investigates the combined impact of a first-mover advantage and of firms' limited mobility on the equilibrium outcomes of a continuous-time model adapted from by Boyer, Lasserre, and Moreaux (2007). Two firms face market development uncertainty and may enter by investing in lumpy capacity units. With perfect mobility, when the first entrant plays as aStackelberg leader a Markov perfect preemption equilibrium obtains in which the leader invests earlier, and the follower later, than in the Cournot benchmark scenario. There is rent equalization, and the two firms' equilibrium value is lower. This result is not robust to the introduction of firm-specific limited mobility constraints. If one firm is sufficiently less able than its rival to mobilize resources at early stages of the market development process, there is less rent dissipation, and no equalization, in a constrained preemption equilibrium. The first-mover advantage on the product market then results in more value for the less constrained firm, and in less value for the follower than when they play 'a la Cournot with perfect mobility. The leading firm maximizes value by entering immediately before its constrained rival, though later than made possible by its superior mobility. Greater uncertainty reduces the value differential to the benefit of thefollower. It also increases the distance between the firms' respective investment triggers. The specifications and results are discussed in light of recent developments in the market for music downloads.Real options; Preemption; First-mover advantage; Mobility

Patent pools and the dynamic incentives to R&D

Patent pools are cooperative agreements between several patent owners to bundle the sale fo their respective licences. In this paper the authors analyse their consequences on the speed of the sale of their respective licences. In this papier, they analyze their consequences on the speed of the innovation process. They adopt an ex ante prespective and study the impact of possible pool formation on the incentives to innovate. Because participation in the creation of a pool acts as a bonus reward on R&D activity, they show that a firm's investment pattern is upward sloping over time before pool formation, and decreases afterwards. The smaller the set of initial contributors, the higher this effect. A pool formation mechanism based on a proposal by the industry and acceptant / refusal by the competition authority may induce overinvestment in early innovations and lead to a delayed clearance date, that is suboptimal from an ex ante viewpoint.LICENSING; R&D RACES; INNOVATION; COMPETITIION POLICY

Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline

We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.price regulation, oligopoly supergame, Markov switching model, gasoline

R&D Delegation in a Duopoly with Spillovers

There is evidence that competing firms delegate R&D to the same independent profit-maximizing laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange of user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm’s transfer payment offers to the laboratory. This in turn determines the laboratory’s capacity to earn profits, R&D outcomes, delegating firms’ profits, and social welfare. We compare the delegated R&D game to two other one where firms (i) cooperatively conduct in-house R&D, and (ii) non-cooperatively choose in-house R&D. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive profits, only if within-laboratory R&D services are sufficiently complementary, but inter-firm spillovers are sufficiently low. We find no room for policy intervention, because the privately profitable decision to delegate R&D, when the laboratory participates, always benefits consumers.Research and development, externalities, common agency.

Horizontal R and D cooperation and spillovers: evidence from France

We test the theoretical prediction that inter-firm spillovers must necessarily be large for the profit differential between cooperation and non-cooperation in R and D to be monotone increasing with them. By using the French data from the 2002 Community Innovation Survey, we find that spillovers have a significant positive impact on the likelihood that competitors cooperate horizontally in R and D only if these spillovers exceed a threshold. Both the value and the significance of estimates increase with the flow of information firms report receiving from competitors.Cooperation

Optimal Collusion with Limited Liability and Policy Implications

Collusion sustainability depends on firms’ aptitude to impose sufficiently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic firms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or financial considerations (profitability requirements) set a lower bound to firms’ losses. The model specifications encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint.

Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline

We analyse the effects of a price floor on price wars in the retail market for gasoline. Our theoretical model assumes a Bertrand oligopoly supergame in which firms initially collude by charging the monopolistic price. Once firms detect a deviation from this strategy, they switch to a lower price for a punishment phase (a "price war" before returning to collusive prices. In 1996, the introduction of a price floor regulation in the Quebec retail market for gasoline serves as a natural experiment with which to test our model. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results show that the introduction of the price floor reduces the intensity of price wars but raises their expected duration. Nous analysons les effets de la présence d'un prix plancher dans le marché de la vente au détail de l'essence. D'un point de vue théorique, nous supposons un modèle à la Bertrand où au départ les firmes font implicitement collusion en demandant le prix de monopole. Lorsqu'une firme dévie de cette stratégie, les firmes concurrentes modifient également leur stratégie en punissant la firme déviante par des prix plus bas (guerre de prix) avant de retourner au prix de collusion. L'introduction d'une réglementation de type prix plancher dans le marché de la vente au détail de l'essence au Québec en 1996 procure une expérience naturelle pour tester le modèle théorique. Nous utilisons un modèle de type «Markov Switching» avec deux états latents afin d'identifier simultanément les périodes de prix collusifs et de guerres de prix et d'estimer les paramètres caractérisant chacun de ces états. Les résultats montrent que l'introduction d'un prix plancher réduit l'intensité des guerres de prix mais accroît leur durée anticipée.price regulation, oligopoly supergame, Markov switching model, gasoline prices, réglementation des prix, jeu à la Bertrand, modèle de Markov, prix de l'essence