GANDAL, NEIL SCOTT; PHD
UNIVERSITY OF CALIFORNIA, BERKELEY, 1989
ECONOMICS, GENERAL (0501)
This dissertation explores three settings where the incentives for innovation
are affected by
interdependencies among strategic agents. The first essay asks to what extent
joint ventures,
assembled by a mechanism designer, can improve on the crude incentives for research
provided by
patent law. In a simple model, we show that, when research qualities are unobservable,
there is a
balanced-budget mechanism that achieves the first best, and there is also a
mechanism without budget
balance that holds firms to their reservation payoffs (which are established
by expected payoffs in a
patent race), while implementing first best actions. Therefore, a profit-maximizing
contract giver will
exhaust all potential for improving efficiency. We define a mechanism for the
case that qualities and
actions are both unobservable, and discuss when the first best can be implemented.
The second essay
examines an environment in which an upstream innovator develops a sequence of
process innovations
and investigates the profitability of several different licensing schemes, when
there are two downstream
firms. If the innovating lab expects to achieve only a single innovation, it
is likely that both downstream
firms will receive licenses. When the lab expects to achieve a sequence of innovations,
diffusion is likely
to occur by exclusive licensing. The analysis suggests that a sequence of innovations
will lead to a less
competitive downstream industry than a single innovation. The third essay addresses
the adoption of
technology when there are network externalities and networks are characterized
by complementary
products produced by different firms. Within this 'hardware - software' paradigm,
we explore how the
pricing of the hardware, the pricing of the software, and the number of varieties
of software available
influences which network will emerge in equilibrium. The market outcome diverges
from the social
optimum in two ways. Lower hardware costs in the future provide a firm with
a strategic pricing advantage,
while lower software development costs provide a firm with more varieties of
software and lower software
prices.
Social
Systems Simulation Group
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