Antonio Minniti

Multi-product firms, R&D, and growth

Multi-product firms dominate production activity in the global economy. There is widespread evidence showing that large corporations improve their efficiency by increasing the scale of their operations; this objective can be realized either by consistently investing in R&D or by expanding the product range. In this paper, we explore the implications of this fact by embedding multi-product firms in a General Equilibrium model of endogenous growth. We analyze an economy with oligopolistic firms that carry out in-house R&D programs in order to achieve cost-reducing innovations. Market structure is endogenous in the model and is jointly determined by the number of firms and the number of product varieties per firm. Both economies of scope and scale characterize the economic environment. We show that the market equilibrium involves too many firms (too much inter-firm diversity) and too few products per firm (too little intra-firm diversity); moreover, we find out that the total number of products and productivity growth are inefficiently low under laissez-faire. The nature of these distortions is discussed in detail.

Turning Piracy into Profits: a Theoretical Investigation

We analyse how the presence of a (private, small-scale) file-sharing community affects the profitability of producers of digital goods within a spatial duopoly model a la Hotelling (1929). Consumers can download pirated content by joining this file-sharing network. To gain access to the community, consumers have to buy and share a digital good with other members. We show that firms benefit from piracy in emerging markets, that is, markets that are not fully covered. The activity of file-sharing, in fact, allows firms to reach a larger share of customers who otherwise would not buy at all. This effect is missing in mature and widespread markets where firms prefer to be protected from piracy. Our results provide a rationale for the observation that in emerging countries, companies are unlikely to take a firm stance against piracy.

R&D Policy and Schumpeterian Growth: Theory and Evidence

In recent years, a large body of empirical research has investigated whether the predictions of secondgeneration growth models are consistent with actual data. This strand of literature has focused on the longrun properties of these models by using productivity and innovation data but has not directly assessed the effectiveness of R&D policy in promoting innovation and economic growth. In the present paper, we fill this gap in the literature by providing a unified growth setting that is empirically tested with US manufacturing industry data. Our analysis shows that R&D policy has a persistent, if not permanent, impact on the rate of economic growth and that the economy rapidly adjusts to policy changes. The impact of R&D tax credits on economic growth appears to be long lasting and statistically robust. Conversely, more generous R&D subsidies are associated with an increase in the rate of economic growth in the short run only, indicating that, at best, this policy instrument has only temporary effects. Overall, the evidence regarding the effectiveness of R&D policy provides more support for fully endogenous growth theory than for semi-endogenous growth theory.

GROWTH, R&D AND WELFARE: THE ROLE OF PUBLIC POLICY

This paper analyzes the normative side of an R&D growth model in which market structure and growth are jointly determined in the equilibrium of a one-sector economy under monopolistic competition. We find that a distortion in the allocation of R&D, namely the presence of technological spillovers between firms, generates two market failures: insufficient growth and excessive entry of firms. We show that this result is driven by the interplay between market structure and growth. A simple tax/subsidy scheme to support the efficient solution is proposed.

Adoption and diffusion of cost reducing innovations: Cournot competition in duopoly

This note analyses the adoption and diffusion of innovations in a horizontally differentiated Cournot duopoly in which firms have to choose the dates for adopting a cost-reducing new technology like in Reinganum (1981a). We prove that product differentiation crucially matters in the diffusion pattern of the innovation and in the comparison between the adoption timing in the decentralized economy Vs the social optimum.

Multinational Production and the Scope of Innovation

This research sheds light on the role of multinational production on the type of innovation performed by firms. We construct matched firm-patent data to measure the scope of innovation, that is the extent to which the output of R&D can be spread across different product lines. We focus on two features of multinational production: (i) core knowledge is geographically more difficult to transfer abroad to foreign production sites, (ii) learning spillovers can occur from international operations. The results reveal that the second effect is more likely to dominate when a firm is active in more product lines. We argue that a more diversified portfolio of products increases a firm’s span of learning from international operations, thereby enhancing its ability to engage in more fundamental research. In contrast, firms with fewer product lines that geographically separate production from innovation focus on more specialized types of R&D.

Growth, Inter-Industry and Intra-Industry Competition and Welfare

In this paper we introduce strategic interaction between firms in an R&D growth model which captures both the intra-industry competition between firms operating within an industry and the inter-industry competition between firms in different industries. We show that the more substitutable the goods produced within each industry (across industries) are, that is, the more intense the intra-industry (inter-industry) competition, the higher is the growth rate. In the comparison between social optimum and a decentralized economy, it is shown that the market outcome is characterized by inefficiently high entry of firms within each industry and insufficient productivity growth.

Location in a Vertically Differentiated Industry

We analyze a two-stage game in a vertically differentiated duopoly with two regions which can differ for the willingness to pay of their consumers or for the market size; firms sequentially choose to settle in one region and then simultaneously compete in prices, selling their products both on the local market and on the foreigner one by exporting them at a fixed cost. We study how strategic interaction influences firms’ location choices and we show that the decision whether to agglomerate or not crucially depends on the extent of regions’ asymmetries, but, counter intuitively, there are parametric regions in which the model predicts that the leader (the first firm choosing location) settles either in the poorer or in the smaller region, leaving the other one to the follower. Welfare analysis completes the paper.