Steffen Lippert

Networks of Relations and Word-of-Mouth Communication

We study networks of relations – groups of agents linked by several cooperative relationships – exploring equilibrium conditions under different network configurations and information structures. Relationships are the links through which soft information can flow, and the value of a network lies in its ability to enforce agreements that could not be sustained without the information and sanctioning power provided by other network members. The model explains why network closure is important; why stable subnetworks may inhibit more valuable larger networks; and why information flows and action choices cannot be analyzed separately. Contagion strategies are suboptimal here, as they inhibit information transmission, delaying punishments.

Networks of Relations and Social Capital

We model networks of relational (or implicit) contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable sub-networks inhibit more valuable larger networks. The model provides formal definitions for individual and communities’ ‘social capital’ in the spirit of Coleman and Putnam.

Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process

This paper constructs a model where entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We first show that aggressive development of a basic innovation by better informed venture-backed firms is used as a signaling device to enhance the sale price of the innovation. We then show that incumbents can undertake early, preemptive, acquisitions to prevent such signaling driven overinvestment, despite the risk of buying a non-productive innovation. Therefore, to exist in equilibrium, venture capitalists must be sufficiently more efficient in selecting innovation projects, otherwise preemptive acquisitions will take place.

Venture Capitalists and the Patenting of Innovations

We model patent‐signaling by informed venture capitalists to incumbent acquirers of developed innovations. We show that, to signal, venture capitalists develop more patents with higher impact than incumbents would. A tightening of patenting requirements by the patent offices, such as an increase in the required inventive step, increases the pool of unprotected early‐stage ideas, which venture capitalists are better at judging than incumbents, and decreases the number and breadth of patented claims needed to separate highly valuable from less valuable innovations. Consequently, such a tightening would make venture capitalists more likely to back entrepreneurs and increase entrepreneurial incentives to innovate.

Suggested Retail Prices with Downstream Competition

We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer’s suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.

Due Diligence, Research Joint Ventures, and Incentives to Innovate

The decision to cooperate within R&D joint ventures is often based on expert advice. Such advice typically originates in a due-diligence process, which assesses the R&D joint ventures profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.

Non-Congruent Views about Signal Precision in Collective Decisions

Abstract We relax the standard assumptions in collective decision-making models that voters can not only derive a perfect view about the accuracy of the information at their disposal before casting their votes, but can, in addition, also correctly assess other voters’ views about it. We assume that decision-makers hold potentially differing views, while remaining ignorant about such differences, if any. In this setting, we find that information aggregation works well with voting rules other than simple majority: as voters vote less often against their information than in conventional models, they can deliver higher-quality decisions, including in the canonical 12 jurors case. We obtain voting equilibria with many instances, in which other voting rules, including unanimity, clearly outperform simple majority.

Introduction to the Special Issue on Advances in Competition Policy and Regulation

In December 2015, the Applied and Theoretical Economics (ATE) Research Network hosted its third annual Symposium on ‘Advances in Industrial Economics, Competition Policy and Regulation’ at the University of Auckland Business School. The 2015 ATE Symposium continued the tradition initiated by the ATE Research Network of bringing together scholars, policy-makers and practitioners in Antitrust Economics and Competition Policy. To increase the outreach of the network and disseminate the findings of research conducted by its members and to foster a dialogue between various actors active in antitrust economics, we proposed to have a Special Issue on Advances in Competition Policy and Regulation, consisting of selected papers among those that contributed to that 2015 ATE Symposium. Our goal was to shed light on pressing issues in this field that are of concern to academic economists, consultants/practitioners and government policy-makers alike. The six articles contained in this Special Issue are a testament to that drive and the will to open up the conversation, and to allow for a critique, about how to improve existing antitrust practices, as well as to foster a reflection about what might constitute potential dangers threatening future advances in the field. We hope you will find the articles in this Special Issue intellectually stimulating while at the same time useful for their applicability to real-world practices in the field. Lu ıs Cabral provides an insightful reading of the state-of-affairs in the field of competition policy and antitrust practices on a global scale. His rather thought-provoking article forces the reader to explore the rationale behind the apparent contradiction of the coexistence of converging and diverging antitrust practices across competition authorities around the globe. Convergence increasingly occurs, thanks to the antitrust scrutiny firms, undergo from each of the competition authorities of the countries where they can exert some influence, regardless of where their headquarters might be based. At the same time, though, firms operating in such a global exchange world, are also subject to the veto power of the country with the strictest antitrust regime. Further to that, whether any such right of veto is necessarily being used to promote efficiency on a global scale is called into question. Some recent antitrust cases, for instance, convincingly hint to the emergence of disturbing protectionist (ulterior motive) antitrust practice. These are cases in which local competition authorities suspiciously blocked mergers among foreign-owned firms to eliminate the potential of them becoming a stronger competitor against domestically owned firms. Arthur Grimes and Richard Meade analyse the impact of alternative decision-making structures across government infrastructure providers. To this end, they develop a two-sector freight model where the government controls both roads and rail track as well as the rail rolling stock, whereas a private sector operator controls trucks. These ownership structures are akin to those in place in the New Zealand transport industry. Within this model, they investigate the consequences of coordination in the upstream and downstream decision-making regarding cost-reducing investments in roads, rail, rail rolling stock and trucks. They further analyse sequential upstream investment choices, alternatively for the cases in which the investing firm fully anticipates or not the impact of its decision-making on the subsequent investment and output choices by a rival. Their study shows that if infrastructure providers maximise profits rather than social welfare, uncoordinated