Heidrun C. Hoppe

The strategic equivalence of rent-seeking, innovation, and patent-race games

Abstract We establish the strategic equivalence of a variety of rent-seeking contests, innovation tournaments, and patent-race games. The results allow us to disentangle negative and positive externalities, and to apply theorems and results intended for rent-seeking games to other games, and vice versa. We conclude with several examples that highlight the practical utility of our results.

The Timing of New Technology Adoption: Theoretical Models and Empirical Evidence

This paper surveys the theoretical literature on the timing of new technology adoption. It presents the state of the art as it falls into two major categories, depending on whether the particular model deals with uncertainty regarding the arrival and value of a new technology and/or strategic interaction in the product market. Empirical evidence is reviewed, and recommendations are given for future research.

Second-mover advantages in the strategic adoption of new technology under uncertainty

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, Review of Economic Studies, XLVIII (1981) 395–405) nor rent-equalization due to the threat of preemption (Fudenberg and Tirole, Review of Economic Studies, LII (1985) 383–401). 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.

Second-mover Advantages in Dynamic Quality Competition

This paper explores a dynamic model of product innovation, extending the work of Dutta, Lach, and Rustichini (1995). It is shown that if R&D costs for quality improvements are low, the dynamic competition is structured as a race for being the pioneer firm with payoff equalization in equilibrium, but switches to a waiting game with a second-mover advantage in equilibrium if R&D costs are high. Moreover, the second-mover advantage increases monotonically as R&D becomes more costly. Copyright (c) 2001 Massachusetts Institute of Technology.

License Auctions and Market Structure

We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony.

Innovation timing games: a general framework with applications

Abstract We offer a new algorithm for analyzing innovation timing games. Its main advantage over the traditional approach is that it applies to problems that had previously been intractable. We use the algorithm to examine two classical innovation problems. We find that the competition takes the form of a waiting game with a second-mover advantage either for any level of R&D costs (process innovation) or for high R&D costs (product innovation). Moreover, both models predict that the second-mover advantage is monotonically increasing in the costs of R&D.

Coarse Matching with Incomplete Information

We study two-sided markets with heterogeneous, privately informed agents who gain from being matched with better partners from the other side. Our main results quantify the relative attractiveness of a coarse matching scheme consisting of two classes of agents on each side, in terms of matching surplus (output), an intermediary’s revenue, and the agents’ welfare (defined as the total surplus minus payments to the intermediary). Following Chao and Wilson (Am Econ Rev 77: 899–916, 1987) and McAfee (Econometrica 70:2025–2034, 2002), our philosophy is that, if the worst-case scenario under coarse matching is not too bad relative to what is achievable by more complex, finer schemes, a coarse matching scheme will turn out to be preferable once the various transaction costs associated with fine schemes are taken into account. Similarly, coarse matching schemes can be significantly better than random matching, while still requiring only a minimal amount of information.

Entry Deterrence and Innovation in Durable-Goods Monopoly

This paper investigates the efficiency of innovation investments in a durable-goods monopoly when a potential entrant threatens to innovate as well. We show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good. The equilibrium is therefore determined not only by competitive pressure due to time inconsistency, but also by the incumbent’s concern for maintaining the technological leadership. We demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation.

Ökonomie der Grundlagenforschung und Wissenschaftspolitik

Abstract This paper has four major objectives. The first is to emphasize the fundamental but mostly overlooked role of instrumentation and experimental technique in linking basic and applied research. The second is to provide an overview of the major economic effects of basic research investments. The third is to discuss reasons for public provision and support of basic research. And the fourth aim is to argue in favour of a reorientation of science policy towards the support of instrumentation and education in experimental laboratories.

A strategic search model of technology adoption and policy

This chapter analyzes the link between adaptive R&D and the timing of new technology adoption in a strategic search model with heterogeneous firms. It is shown that the subgame-perfect equilibrium is in stopping rules with a reservation property. The model is used to examine the effect of rivalry, and whether R&D and adoption subsidies can increase social welfare and generate strategic advantage in international technological competition. It is found that the answers depend critically upon the relative magnitude of first-mover and second-mover advantages in the timing of adoption.