John T. King

The sale of unprotected inventions under alternative models of contracting behavior

Abstract When property rights are unavailable or unenforceable for a specific invention it has been shown [Am. Econ. Rev. 84 (1994) 190] that it may still be possible for an independent inventor to enjoy some of the surplus generated by his invention. In this paper, I consider the case of an independent inventor with bargaining power who is free to choose the form of contracting when attempting to sell a valuable invention to firms in a duopoly industry. I show that an inventor with small wealth can do no better than to disclose his invention to a randomly chosen firm and make a contract offer. For moderate wealth, I show that, even though industry profit is maximized under a monopoly structure, the inventor may be indifferent between selling the invention to both firms by signaling the value of his invention (which is accomplished by offering contracts to both firms) and selling the invention to one firm (by offering a contract). When wealth becomes sufficiently large, I show that it is always more profitable for the inventor to signal the value of his invention (by offering a contract) to only one firm.

John Stuart Mill and the Economic Rationale for Organized Labor

The Classical School of economics is generally credited with providing the ideological foundation for the study of labor unions in the United States. In particular, one passage from Adam Smiths Wealth of Nations is believed to be the catalyst for the systematic study of organized labor. Smith and other classical economists wrote extensively of “labors disadvantage” with capital, which allowed for unfair negotiations between workers and management. In this paper, we suggest that, although Adam Smith was the first economist to identify the problems that labor has in its dealings with management, he did not offer a truly theoretical explanation for these difficulties. The economist who first studied the labor/capital nexus from an economic perspective was John Stuart Mill. Mills pioneering treatment of labor and capital provided an economic justification for the existence of labor unions.

Quality Competition with Stochastic Demand and Costly Search: Theory and Evidence from the Video Rental Market

A theoretical model is developed to predict optimal service rates in markets where firms compete in availability. We show that firms are more likely to stock-out of popular products as the cost of consumer search increases. Carlton (1978) showed that, in a zero-profit competitive environment, firms balance the risk of not being able to serve a particular customer against the cost of holding excess capacity and that this balancing act will result in an equilibrium in which not all customers are served. The model was later adapted to oligopolistic competition by Peters (1984) and Deneckere and Peck (1995). This paper extends this literature on competition under stochastic demand by developing a model that incorporates 1) the possibility that customers may be able to purchase from another firm in the case of a stock-out and 2) the option for firms to offer an imperfect substitute in order to persuade some customers to make a purchase when the first choice product is out of stock. Empirical evidence is presented in support of the theoretical model using data collected from video rental outlets in a midsize southeastern US city.

Depth versus breadth in video rental kiosks

ABSTRACT We examine data from video rental kiosks for clues about how changes in the video rental industry have altered competition. Traditional video stores competed in availability, with consumer search costs determining the optimal probability of stock-outs. We find evidence that Redbox, the only major renter of physical discs in today’s market, competes in either availability (depth) or variety (breadth) depending on the mix of moratorium versus day-and-date titles released each week. Moratorium titles are those for which Redbox has agreed to wait a month or more beyond the street release date before adding them to kiosks, whereas day-and-date titles can be added to kiosks as soon as they are released on DVD. When there are relatively more day-and-date titles, Redbox competes against on-demand services by focusing on providing depth of hit movies at a much lower cost. As the mix of releases turns towards more moratorium releases, Redbox can no longer win over customers willing to pay the higher cost of on-demand streaming to avoid the moratorium. In this situation, Redbox competes with subscription-based services like Netflix which are also subject to studio moratoriums by offering a greater breadth of titles.