Ingemar Dierickx

Indirect taxation and cournot equilibrium

We analyse a Cournot model of oligopoly in an industry which is subject to indirect taxation. We consider value added as well as excise taxes. We allow for various types of demand and cost conditions, as well as cost differences across firms. As the tax is raised, two types of outcomes can prevail. On the one hand, the net price can increase, which is shown to lead to an increase in market share of high cost firms. On the other hand, the net price can fall, in which case efficiency is rewarded in that low cost firms gain market share. This latter outcome, which accords with intuition, will obtain in most instances. It is more likely to occur (i) with VAT rather than with an excise tax, (ii) with concave rather than convex demand and (iii) with decreasing rather than increasing marginal cost. Finally, we show that an increase in VAT can lead to higher profits for low cost firms, provided cost differences across firms are large enough.

Licensing and bundling

Abstract A common problem in licensing contracts is that contractual language does not necessarily guarantee that the license will effectively be exclusive. The practical difficulty is that the licensor may be able to invent around this restriction. We show that commodity bundling may provide a mechanism for the innovating firm to credibly commit to act less aggressively after licensing a product innovation. As a result, bundling and licensing may be complementary strategies. Even if the innovating firm does not have the incentive either to license or to bundle, it may still have the incentive to follow a licensing plus bundling strategy. We identify a second remedy for the licensor’s commitment problem: a royalty. We show that, under certain conditions, a royalty may be used as a commitment device enabling the licensor to credibly — and costlessly — establish exclusivity.

The Strategic Deployment of Quality-Improving Innovations

How can a firm deploy an innovation to fully realize its rent potential? We use a game-theoretic model to study the deployment of innovations that enhance the quality of an existing product. Three deployment strategies are compared: captive use, where the firm uses the innovation to enhance the competitive position of its own product; licensing, where the firm shares the innovation with competitors; and independent selling, where the firm incorporates the innovation in a complementary product or service that is sold separately to consumers. We study how the interplay of efficiency and competitive considerations favors certain deployment options over others.

Diseconomies of Time Compression

This paper discusses the concept of time compression diseconomies and its importance to the sustainability of competitive advantage. It focuses on a key driver of time compression costs, the time-dependency of resource accumulation, and illustrates the effects of three characteristics of this accumulation process (productivity, cycle time and absorption constraints). The effects are illustrated using a stylized stocks-flows simulation with the iThink software.

The Dynamics of Resource Erosion

The paper discusses patterns of resource erosion (alternatively called resource decay, leakage, depreciation). Taking a stocks-flows perspective, erosion is conceptualized as the loss of value per period (e.g. a year) of an asset stock (e.g. R&D capital, brand loyalty) as a consequence of a variety of mechanisms (e.g. R&D spill-overs, customers leaving, expiration of a patent). The paper discusses two patterns of erosion, linear and exponential, and explores their strategic implications. The paper also discusses some unexpected outcomes that may result from the combined effect of common growth and decay patterns, as well as additional difficulties that stem from inference lags.

Economies of Resource Accumulation

This paper discusses when firms may expect economies in the accumulation of resources (asset mass efficiencies). Specifically, we describe situations in which the accumulation of a resource benefits from a “success breeds success” dynamic that creates an exponentially growing gap between resource levels of early movers and imitators. Early movers can expect such an advantage where products or services have high evaluation costs, durability, trial costs, network value and cost, impulse characteristics, and dependence on complementary products. Where the accumulation of one resource depends on the level of another resource, accumulation economies may also be expected. The mechanisms are illustrated using stylized stocks-flows simulations with the iThink software.