Stephen Martin

The nature of innovation market failure and the design of public support for private innovation

We relate the sources of innovation market failure to the dominant mode of sectoral innovation and outline mechanisms for public support of innovation that target specific sources of innovation market failure.

Advertising, Concentration, and Profitability: The Simultaneity Problem

This article examines the identification of a system of equations which seeks to explain industrial profitability, concentration, and advertising intensity. We specify a concentration equation which reflects a dynamic adjustment to a long-run level which depends on the nature of entry conditions. The specification of the concentration equation is seen to be critical to the identification of the profitability equation. We test the model against a sample of input-output table detailed industries and find that the resulting estimates suggest the importance of avoiding the omission of relevant explanatory variables.

R & D joint ventures and tacit product market collusion

Abstract It is shown that R & D joint ventures make it more likely that firms will be able to sustain tacit product-market collusion, all else equal.

Strategic and welfare implications of bundling

A standard oligopoly model of bundling shows that bundling by a firm with a monopoly over one product has a strategic effect because it changes the substitution relationships between the goods among which consumers choose. Bundling in appropriate proportions is privately profitable, reduces rivals´ profits and overall welfare, and may drive rivals from the market.

The measurement of profitability and the diagnosis of market power

This paper develops a model which yields the specification of an empirical test for the difference between price and marginal revenue, which will be significantly positive if a firm exercises market power. The test can be carried out with any of a number of commonly used measures of accounting profitability, and embodies a specific functional form for the consideration of nonconstant returns to scale. The model is estimated for four firms in the medical-surgical supply industry and four firms in the motor vehicle industry. The results are consistent with the hypothesis that product differentiation is an important basis for firm-specific market power; import quotas are shown to increase market power in the motor vehicle industry. Claims that accounting data cannot be used to analyze market power are rejected.

Vertical Market Participation

Firms that operate at both levels of vertically related Cournot oligopolies will purchase some input supplies from independent rivals, even though they can produce the good at a lower cost, driving up input price for nonintegrated firms at the final good level. Foreclosure, which avoids this strategic behavior, yields better market performance than Cournot beliefs.

Causes and effects of vertical intergration

This paper sets out to define new measures of industry-average forward and backward integration, and incorporate them into an empirical stucture–conduct–performance model. Results suggest that integration is encouraged where there are relatively few firms in an industry and if sales are increasing. Forward integration occurs in reaction to large outgoing distribution margins. Backward integration acts to increase concentration, at least in some parts of the manufacturing sector. Integratin has a complex and interactive effect on profitability, serving sometimes to raise profitability and sometimes to lower it.

Private and social incentives to form R & D joint ventures

R & D patent pools induce individual firms to reduce investment in R & D, but are socially beneficial because they ensure greater competition in the post-innovation market. It is not usually optimal for all firms to combine in a single cooperative R & D venture. If R & D combinations are formed voluntarily by firms that seek to maximize their expected value, they will not, in general, adopt the socially optimal structure of R & D joint ventures.

The Evaluation of Strategic Research Partnerships

Policy implications of strategic research alliances are analyzed, with emphasis on government-private sector cooperation, government support for private sector innovation, and evaluation of such government programs.

Market structure and U.S. trade flows

Abstract Using samples of input-output table detailed industries, we test the impact of various elements of market structure on U.S. trade flows, at the industry level, holding factor proportions constant. Industry demand characteristics and the extent of scale economies have significant impacts on trade flows. Labor intensity at the industry level has the effects on trade flows which are predicted by the factor proportions theory. Capital intensity increases both import and export flows; this result, together with certain others, suggests the importance of trade among industrialized countries in producer goods.