Morton I. Kamien

Meet me halfway: research joint ventures and absorptive capacity

Abstract We propose a representation of a firm’s ‘effective’ R&D effort level that reflects how both its R&D approach and R&D budget influences its ability to realize spillovers from other firms’ R&D activity, i.e. its ‘absorptive capacity’, and generalizes the commonly employed representation. The ability to choose an R&D approach is accommodated by positing a three-stage game in which the choice of an R&D approach is made in its first stage. The firms’ R&D budgets and output levels are chosen in the game’s second and third stages, respectively. It is found that when firms cooperate in the setting of their R&D budgets, i.e. form a research joint venture, they choose identical broad R&D approaches. On the other hand, if they do not form a research joint venture, then they choose firm-specific R&D approaches unless there is no danger of exogenous spillovers. The analysis suggests that the commonly employed representation of firms’ effective R&D investment levels implicitly presupposes that the firms have chosen to cooperate in setting their R&D budgets.

The Limits of Monopolization Through Acquisition

We address the question of whether competitive acquisition of firms by their rivals can result in complete or partial monopolization of a homogeneous product industry. This question is modeled in terms of two distinct three-stage noncoopera-tive games. Analysis of subgame perfect pure strategy Nash equilibria of these games discloses that, under simplifying assumptions, monopolization of an industry through acquisition is limited to industries with relatively few firms. Partial monopolization is either limited in scope or can be completely eliminated by prohibiting any owner from acquiring over 50 percent of the firms in the industry.

Dynamic Duopolistic Competition with Sticky Prices

The authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially-weighted function of accumulated past consumption. This implies that the current price of the good does not decline by as much to accommodate any given level of current consumption. Our an alysis is conducted in terms of a differential game. It is found that the equilibrium price corresponding to the open-loop Nash equilibriu m strategies approaches the static Cournot equilibrium price while th e equilibrium price corresponding to the closed-loop Nash equilibrium strategies, which are subgame perfect, approaches a price below it. Copyright 1987 by The Econometric Society.

Patent Licensing: The Inside Story

In this paper we compare and contrast the most profitable modes of licensing a cost-reducing invention by an inventor who is an industry incumbent with one who is not. We find that an industry incumbent favors licensing by means of a royalty per unit of output to which the new technology is applied while an outsider prefers to auction off a fixed number of licences outright. Our analysis also suggests that an outside inventor finds it most profitable to target greater cost-reducing inventions to monopolistic industries while an incumbent inventor favors competitive industries.

Optimal Exhaustible Resource Depletion with Endogenous Technical Change

The prospect of imminent exhaustion of some natural resources, especially those employed in energy generation, has prompted calls for conservation through reduction or even cessation of economic growth. A natural framework for analysing such proposals is a hybrid offspring of Ramseys optimal growth model [8] and Hotellings model of exhaustible resources [4]. Specifically, Anderson [1], Solow [10] and Stiglitz [11], among others, have recently studied optimal growth models modified to incorporate production requirements for an essential exhaustible resource. It has been shown that while resource irreplenishability limits growth in per capita consumption, this limitation may be offset by technical progress along with increasing capital accumulation and substitution. Reliance upon technical progress, in particular, to offset the constraining irreplenishability of a vital natural resource is based on its role as a major source of past economic growth. Along with the discovery of the past importance of technical progress has come awareness that it proceeds neither smoothly nor without effort. It is affected by the resources devoted to it. Unpredictability in technical progress results from our partial ignorance of the principles underlying natural and social phenomena. The randomness can be reduced at a cost, but it cannot be eliminated. These features of technical advance have typically not been incorporated in most of modern growth theory, wherein progress is regarded as proceeding steadily, costlessly and exogenously. In contrast, a few papers have considered more abrupt and significant changes in technology used. Smith [9] assumes that two alternate technologies are available from the outset, one requiring an exhaustible resource at low initial cost and the other employing an inexhaustible factor at high initial cost. He shows that maximum output will be achieved by using only the exhaustible resource technology at the beginning but gradually supplementing and then replacing it with the high-cost alternative. Dasgupta and Heal [2] considered the possibility that a new technology will eventually appear that does not employ limited natural resources. The technical advance could be costlessly achieved but the date of its availability was both random and exogenous. In a subsequent paper, Dasgupta, Heal and Majumdar [3] extended this model by making development of the new technology endogenous. Their model is very similar to and consistent with the one independently developed by us and described below. Our view is that technical advance is in large part neither costless nor exogenous [6]. The rate and direction of technical progress are influenced in the long run by the economic resources allotted to it, guided by the quest for profits and government policy. In this paper we follow the framework used by Dasgupta and Heal [2] while making technical advance endogenous. We omit steady technical progress that reduces unit factor requirements in favour of emphasizing a drastic technical change that relaxes the limitation imposed by

On the Degree of Rivalry for Maximum Innovative Activity

Introduction, 245. — Model I — the framework, 250. — Model I — rivalry and speed of innovation, 253. — Model II — the framework. 255. — Model II — rivalry and speed of innovation, 256. — Summary and conclusions, 258. — Appendix, 259.

Subcontracting, coordination, flexibility, and production smoothing in aggregate planning

We propose a model in which subcontracting can be explicitly considered as a production planning strategy. Possible market and nonmarket subcontracting mechanisms and their costs are discussed. We show that a class of feasible subcontracting mechanisms in which firms coordinate their production via subcontracts Pareto-dominate other mechanisms. We then offer an example with quadratic cost functions and coordination subcontracts; linear decision rules for production, inventory, and subcontracting are derived. In the example, subcontracting reduces the variability in production and inventory. The same interpretation can be used for flexibility of manufacturing resources.

Cross Licensing of Complementary Technologies

Abstract We consider the case where the introduction of a new product requires the development of two distinct complementary technologies. A firm can seek to either develop both technologies, or one of them and engage in a cross licensing with another firm that has developed the complementary technology. We focus on the interdependence between the innovation race and the cross licensing game, i.e., how the potential continuation of the race affects the cross licensing terms and how the possibility of cross licensing affects the pace of the innovation race.

On the value of information in a strategic conflict

Abstract We consider a situation in which an agent M (the “maven”) possesses information relevant to the players of an n-person game in which he is not a participant. We define the “inducible set” as the set of all outcomes which can be made unique Nash equilibria of a game resulting from the mavens transmission of information. This inducible set is a formal expression of Ms ability to manipulate the game. We demonstrate some properties of the inducible set and characterize it for 2-person zero-sum games. Finally, we define the notion of the “value of information” possessed by M and provide an explicit formula to calculate this value in terms of the inducible set.

Market Structure, Elasticity of Demand and Incentive to Invent

What will be the incentive to invention offered by the two industries after adjusting their sizes to remove the normal restrictive effects of a prior monopoly? We shall see that in this case the incentive to invention is just the reverse of what Arrow concluded; for industries that would operate at the same levels of output in the absence of the invention, the development of a monopoly invention with price discriminating power will receive greater rewards from a buying industry that is a monopoly.4