Lars-Hendrik Röller

Complementarities in innovation policy

Abstract This paper develops a framework for testing discrete complementarities in innovation policy using European data on obstacles to innovation. We propose a discrete test of supermodularity in innovation policy leading to a number of inequality constraints. We apply our test to two types of innovation decisions: to innovate or not, and if so, by how much. We find that the evidence regarding the existence of complementarity in innovation policies depends on the phase of innovation that is targeted (getting firms innovative or increasing their innovation intensity) as well as on the particular pair of policies that is being considered. The two phases of the innovation process, i.e. the probability of becoming an innovator and the intensity of innovation, are subject to different constraints. Interestingly, there seems to be a need to adopt a package of policies to make firms innovate, while a more targeted choice among policies is necessary to make them more innovative.

Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry

The deregulation of the telecommunications industry has resulted in a variety of industry structures which have been created in the hope of increasing competition. One example is the licensing of cellular telephone services in the United States. In the face of scarce radio spectrum, the Federal Communications Commission (FCC) has created duopolies in which two firms are granted licenses to compete in strictly defined product and geographic markets. Rate regulation typically imposed for natural monopolies is forgone because it is believed that two firms provide sufficient competition to prevent collusive pricing. We test this assertion using data collected from the cellular telephone industry in the United States. Taking advantage of the unique regulatory environment, we propose a structural model of market power and test to what degree duopolistic competition leads to competitive market outcomes. We find that cellular prices are significantly above competitive, as well as non-cooperative duopoly levels. Substantial welfare gains can be achieved through price reductions. We also find considerable variance in pricing behaviour across markets and operators. In a second step we explain the identified conduct in terms of various market and organizational structures that might explain competitive behaviour. We find that cross-ownership and multimarket contact are important factors in explaining non-competitive prices. Policy implications are also discussed.

Proper Quadratic Cost Functions with an Application to the Bell System

When choosing a flexible functional form to model multioutput cost structures, one is quickly confronted with severe violations of certain regularity conditions over large regions of output space. This paper explicitly imposes regional properness on the parameter space of flexible functional forms. The apparent trade-off between functional flexibility and functional properness has been identified for the case of the quadratic cost function. Using the quadratic cost function, the proposed procedure is illustrated with an application to the Bell System. The results suggest that the telecommunication industry in the United States--prior to the Bell System break-up--was a natural monopoly. Copyright 1990 by MIT Press.

The Political Economy of European Merger Control: Evidence using Stock Market Data

The objective of this paper is to investigate the determinants of European Union (EU) merger control decisions. We consider a sample of 167 EU mergers between 1990 and 2002 and evaluate their competitive consequences by the reaction of the stock market price of competitors to the merging firms. We then account for the discrepancies between the actual and optimal decisions as indicated by the stock market in terms of the political economy surrounding the cases. Our results suggest that the commission’s decisions cannot be solely accounted for as protecting consumer surplus. The institutional and political environment does matter. As far as influence is concerned, however, our data suggest that the commission’s decisions are not sensitive to firms’ interests. Instead, the evidence suggests that other factors—such as market definition and procedural aspects, as well as country and industry effects—do play a significant role.

Efficiency and productivity growth comparisons of European and U.S. Air carriers: A first look at the data

In this paper we carry out technical efficiency and productivity growth comparisons among the four largest European carriers and eight of their American counterparts. The time period of our comparisons is 1976 through 1986. This is a particularly interesting period since it begins just after the informal steps toward deregulation in the United States and ends just prior to the introduction of the first wave of reforms by the Council of Ministers in Europe. We also identify the potential efficiency gains of the European liberalization by comparing efficiency differences between the two carrier groups. The reductions in inefficiency describe the amount that inputs can be decreased without altering output.

Collusion Through Joint R&D: An Empirical Assessment

This paper tests whether upstream R&D cooperation leads to downstream collusion. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of firms participating in research joint ventures (RJVs). Using information from the U.S. National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors, created through firms being members in several RJVs at the same time, are conducive to collusive outcomes in the product market that reduce consumer welfare. By contrast, RJVs among noncompetitors are efficiency enhancing.

An aggregate structural model of competition in the European banking industry

Abstract The objective of this study is to analyze competition in the European banking industry in light of the changing regulatory frameworks to which banks are exposed. We focus on the provision of mortgages to households and loans to the corporate sectors in seven European countries. We develop and estimate an aggregate model for the European banking industry which controls for asymmetries in market structure. We reject non-cooperative Nash behavior in favor of more collusive cartel-like conduct. In addition, we provide some evidence that the degree of coordination among banks in the household market has fallen over the period. Such evolution can presumably be associated with the widespread deregulation that took place during the 1980s.

Airline efficiency differences between Europe and the US: Implications for the pace of EC integration and domestic regulation☆

Abstract In this paper we examine the performance of the eight largest European and the eight largest American airlines during the period 1976–1986. During this period the American industry was deregulated and the European industrys competitive posture was significantly liberalized. Two alternative methodologies for identifying productive efficiency are used - a parametric one using statistical estimation and a nonparametric one using linear programming. We find that were European carriers under deregulation to be as productively efficient as their American counterparts, the European industry would save approximately

Economies of scale and scope in French mutual funds

4 billion per year (in 1986 dollars).

Why Firms Form (or do not Form) RJVS

Abstract This paper evaluates the economies of scale and scope in the French mutual funds (SICAV) industry. This segment of the financial sector offers the unique characteristic that some firms specialize, while others supply several products. The results suggest economies of scale and scope for small institutions and diseconomies for larger firms. An appropriate size for a diversified company is in the range of FF 2.9 billion.