José J. Sempere-Monerris

Optimal Licensing in a Spatial Model

We analyze a multi-stage non-cooperative game involving an outside patent-holder, who seeks to licence a process innovation, and two price-setting firms located on a circumference. Three licensing policies are studied: the auction, the fixed fee and the per unit output royalty. The main finding is that, contrary to standard results, royalties yield higher payoffs to the patent-holder than do an auction policy or a fixed fee policy regardless of the size of the innovation. Besides, a conflict between private and social interests arises since consumers are better off when the technology is licensed via fees.

Networks of manufacturers and retailers

We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer anda retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs: (i) the non-exclusive distribution & non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution & exclusive dealing network in which each retailer distributes a different product is stable for low degrees of product differentiation; (iii) the mixed distribution network in which one retailer distributes both products while the other retailer sells only one is stable for high degrees of product differentiation and large link costs. We show that the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is either low or high.

Asymmetric Demand Information and Foreign Direct Investment

We examine the FDI versus exports decision of firms competing in an oligopolistic (quantity-setting) market under demand uncertainty and asymmetric information. Compared to a firm that chooses to export, a firm that chooses to set up a plant in the host market has superior information about local market demand. In addition to the well-known tension between the fixed set-up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if trade costs are zero. The analysis is robust to price competition and to the possibility that a foreign firm can engage in both FDI and exports.

The manufacturers' choice of distribution policy under successive duopoly

We examine an asymmetric noncooperative game between two manufacturers selecting the number of retailers who can distribute their products. In deciding whether to distribute through one or both retailers, there are two conflicting effects: the output expansion effect, because the product is sold in more outlets; and the competitive effect, associated with the introduction of intrabrand competition. Product differentiation and demand asymmetries between the two products determine which of these two effects dominates the other. When product differentiation is strong and brand asymmetry is moderate, both manufacturers distribute through both retailers in equilibrium. However, when both product differentiation and brand asymmetry are weak, exclusive dealing through a single retailer is the equilibrium. Perhaps the most interesting finding is that there also exist asymmetric equilibria in which one manufacturer distributes through both retailers but the other manufacturer distributes through one retailer. These equilibria can arise when both product differentiation and brand asymmetry are strong.

Product Line Choice in Retail Duopoly

This paper develops a successive duopoly model to identify conditions under which differentiated retailers that compete in quantities, when deciding on the range of brands to offer, will carry overlapping product lines. They will do so when retail margins on each brand are not too asymmetric. Otherwise, the less profitable brand is foreclosed from the market. It is shown that welfare increases if the upstream industry is perfectly competitive, even though fewer brands may be sold. With price competition though, exclusive dealing arises when retailers are not too differentiated and in-store competition is sufficiently intense.

Licensing policies for a new product

This paper studies licensing policies for the owner of a new product and addresses their welfare impact in the assessment of market failures. We show that the best licensing policy for the patent holder is fixed fee licensing with an exclusive territory clause. Consumers are also better off with fixed fees but do not prefer the exclusive territory clause. Social welfare is higher under exclusive territories when fixed costs are not too large. As for efficiency, the number of licences in the private market equilibrium falls short of the socially optimal solution. Our analysis discloses that (i) any policy measures aimed at enhancing the diffusion of technology, in terms of the number of licences, would be welcomed and, (ii) the permissive treatment received by licensing agreements with exclusive territories is justified.

Cooperation In R&D With Spillovers And Delegation Of Sales

Cooperation in several phases of the innovation process is viewed by antitrust authorities with suspicion. They face the dilemma between providing the right incentives for the appro-priability of returns to R&D and the risks of diminishing product market competition. The current legislation in the European Union and the United States gives special treatment to cooperation in R&D and the joint exploitation of results (extended cooperation). We study several collusive regimes for a class of examples in which vertical relations are explicitly introduced. Regarding antitrust policy implications we fmd that: a) there is an ana-lytical justification to a ‘rule of reason’ treatment for extended cooperation in research joint ventures and, b) individual exemptions, though restrictive of competition, might be welfare improving.

Market Structure and R∧D Joint Ventures: The Case of Product Innovations

Departing from the received fact that research joint venture agreements are allowed on the grounds of a permissive ruling, we study what conditions are necessary for venture partners to carry on R∧D cooperation to the marketing stage. We treat the case of product innovations exploitable with different usages in unconnected markets. Two main results appear: firms always have incentives for a distribution of varieties, but not always agree on the distribution of products. The condition for the last result to happen gives a useful rule for antitrust authorities relating the degree of sustitutability across varieties and the relative profitability of the markets.

R&D Networks Among Unionized Firms

We develop a model of strategic networks in order to analyze how trade unions will affect the stability and efficiency of RD otherwise, the efficient network is the partially connected network. Thus, a conflict between stability and efficiency may occur: efficient networks are pairwise stable, but the reverse is not true. Strong stability even reinforces this conflict. However, once unions settle wages such conflict disappears: the complete network is the unique pairwise and strongly stable network and is the efficient network whatever the spillovers.

Brand price differentials in retail distribution: product quality and service quality

ABSTRACT A theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and are in the range of 9–15% for low-quality store brands. Besides, at a given retailer, the price premia paid for the national brand are very large: around 150% between national brands and low-quality store brands, and around 40% between national brands and high-quality store brands. Also, the price differential between the national brand and the low-quality store brand does not increase with service quality.