Andrea Mantovani

Parallel Imports and Innovation in an Emerging Economy

This paper studies the consequences of parallel import (PI) on process innovation of firms heterogeneous in their production technology. In an international setting where foreign markets differ with respect to their intellectual property rights regime, a move by a technologically inferior firm to exploit a new unregulated market can result in imitation and PI. The impact of PI on innovation is determined by the degree of heterogeneity between firms and trade costs. Increasing trade costs shifts from the market share losses brought by PI from the more to the less productive firm. This induces the former to invest more in R&D. At this point, sales in the foreign market become a determinant of the R&D decision by the technologically inferior firm. For low levels of firm heterogeneity, PI increases output by this firm targeted for the unregulated market, hence increases its innovation efforts. A tariff policy accompanied by opening borders to PI only increases welfare when the technological gap between the two firms is sufficiently large.

Complementarity between product and process innovation in a monopoly setting

In this article we study complementarity between market-enhancing product innovation and cost-reducing process innovation in a monopoly setting. First, we consider the possibility for a firm to alternatively invest only along one of the two directions and compare the incentives of process vs. product innovation. Then, we allow the firm to invest simultaneously in both activities, showing that both investment levels and profit are higher than in the case of individual investment. Thus, product and process innovations are complementary, and the firm always prefers the simultaneous adoption of both activities.

Process and product innovation in a vertically differentiated industry

We examine a vertically differentiated duopoly where firms invest in process and product innovation and then compete in prices under full market coverage. We show that (i) process innovation fosters (hinders) product innovation for the low-quality (high-quality) firm; (ii) the firm which is initially more efficient invests more than the rival in process innovation; (iii) if the initial differential between marginal costs is sufficiently high, the demand for the less efficient firm is nil and the duopoly equilibrium does not exist.

The fight against cartels: a transatlantic perspective

The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred.

Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

The recent years have exhibited a burst in the amount of collaborative activities among fi…rms selling complementary products. This paper aims at providing a rationale for such a large extent of collaboration ties among complementors. To this end, we analyze a game in which the two producers of a certain component have the possibility to form pairwise collaboration ties with each of the two producers of a complementary component. Once ties are formed, each of the four fi…rms decides how much to invest in improving the quality of the match with each possible complementor, under the assumption that collaborating with a complementor makes it cheaper to invest in enhancing match quality with such complementor. Once investment choices have taken place, all fi…rms choose prices for their respective components. Our main fi…nding in this setting is that fi…rms end up forming as many collaboration ties as it is possible, although they would all prefer a scenario where collaboration were forbidden, unlike a social planner.

The strategic effect of bundling: a new perspective

This paper investigates the strategic effect of bundling when a multi-product firm producing two complements faces competition in both markets. I consider a demand structure where both Cournot and Bertrand competition can be evaluated. Bundling is completely ineffective when firms compete in quantities. On the contrary, under Bertrand competition, selling the two goods in a package is profitable when the goods produced by the rivals are perceived as close substitutes to those produced by the multi-product firm. Bundling drives prices up, and not only consumer surplus, but also social welfare shrinks, thus calling for the intervention of the antitrust agency.

Persuasive advertising under Bertrand competition: A differential game

We investigate a linear state differential game of advertising, under Cournot and Bertrand competition. A unique saddlepoint equilibrium exists if the marginal cost of advertising is sufficiently low. Bertrand competition entails more intense advertising than Cournot competition, since increasing market size is more important to firms when competition is tough.

Identifying reaction functions in differential oligopoly games

We investigate the issue of strategic substitutability/complementarity in differential games. We prove that instantaneous best replies exist if Hamiltonian functions are multiplicative in the control variables. Otherwise, if the Hamiltonians are addively separable w.r.t. controls, a dominant strategy emerges for each player. In this case, however, imposing stationarity on the differential equations of states, one can still identify best replies at the steady state, which is ruled out by definition in static games.

Environmental Policy and Trade of Manufacturing Goods in the Central and Eastern Enlargement of the European Union

We investigate empirically the link between environmental policy and trade with particular reference to the single market and enlargement. Incorporating the methodology of endogenous protection, we question if countries should wish to weaken their environmental policies in response to more trade integration; in particular, we look at the effect of harmonizing product regulations and the level of imports. The empirical answer suggests that harmonizing product regulations leads to more trade; domestic environmental regulations have a larger negative effect on trade when they are treated as endogenous; and EU countries relax domestic environmental regulations due to the harmonization of regulations, whereas the Central and Eastern European countries that joined or will join the European Union set more stringent environmental regulations.

PARALLEL IMPORTS AND INNOVATION IN AN EMERGING ECONOMY: THE CASE OF INDIAN PHARMACEUTICALS

This paper studies the impact of the re-importation of imitated pharmaceuticals as a by-product of an open policy toward parallel import (PI) on process innovation. Foreign investment by a firm to exploit a new unregulated market with weak intellectual property rights can give rise to imitation. These products can potentially re-enter the original country when PI is allowed influencing research and development (R&D) incentives. In an emerging economy with technologically heterogeneous firms, trade costs shift PI-related market share losses from the more to the less R&D efficient firm, inducing the former to strategically increase R&D. PI accompanied by tariffs also induces higher R&D effort by the technologically inferior firm when it results in an expansion of its sales abroad. A tariff on PI is most likely to increase welfare when the technological gap between the two firms at home is sufficiently large.