Workshop on: Trade, Innovation and Growth （RIEBセミナー／六甲フォーラム／科研基盤研究（A）「タイムゾーンとサービス・タスク貿易理論の動学的展開および経済成長への含意」／科研基盤研究（B）「国際的買収による世界市場への参入とその動学的影響」共催） Workshop on: Trade, Innovation and Growth (Jointly supported by: RIEB Seminar / Rokko Forum / Grant-in-Aid for Scientific Research (A)・(B))
Innovation for Sale
This paper investigates the factors affecting an entrepreneur's choice between selling a product invention to an incumbent firm and using the invention to leapfrog the incumbent firm and become the new market leader. In particular, skill-differentiated entrepreneurs develop heterogeneous quality improvements, with expected product quality dependent on the the skill level of the entrepreneur. Low-quality inventions are sold to the market leader and high-quality inventions are used to leapfrog the market leader. As a result of the sell versus leapfrog choice, the rate of innovation and average incumbent product quality are increasing in labor productivity in R&D. Either a rise in fixed production costs or an improvement in the effect of skill on the expected quality of innovations, however, leads to higher average incumbent product quality and a lower rate of innovation. We also consider the implications of the entrepreneur's choice for growth.
Tariffs, R&D, and Two Merger Policies
In an international Cournot oligopoly model, we compare two different merger policies when firms are merging endogenously and engage in research and development (R&D). In the benchmark model, countries set optimal tariff levels but do not have merger policy. If ex-ante identical firms merge internationally, they have an ex-post cost advantage over the outsiders due to tariff savings. This gives the merger an incentive to increase its R&D investment, which increases the cost dispersion further; therefore, the merger paradox, where each firm wants to be an outsider, disappears when R&D is efficient. As a result, we find different equilibrium market structures depending on the efficiency of R&D. In the second part, we compare two different merger policies, one that puts emphasis on welfare (roughly the Canadian merger policy) and another one that puts emphasis on consumer surplus (roughly the European Union's merger policy). We show that under the "welfare-increasing" merger policy, monopoly is the equilibrium market structure when R&D is very efficient. This explains why a merger, which created a monopoly, was approved in Canada. As R&D becomes less efficient, the equilibrium market structures become less concentrated under the two different merger policies. Each merger policy can be global welfare maximizing depending on the efficiency of R&D; however, the "consumer-surplus-increasing" merger policy is better for a wider range of parameters.
Does Endogenous Timing Matter in Implementing Partial Tax Harmonization?
The endogenous timing of moves is analyzed in a repeated game setting of capital tax
competition among countries asymmetric in terms of productivity, where a subgroup of countries implementing partial tax harmonization and outside countries choose whether to set capital taxes sequentially or simultaneously. It is shown that the simultaneous-move outcome prevails in every stage game of the infinitely repeated tax-competition game as its subgame-perfect Nash equilibrium if a tax union consists of similar countries, whereas both the simultaneous-move and the (Stackelberg) sequential-move outcomes can be sustained as subgame-perfect Nash equilibria when a tax union consists of dissimilar countries. This finding is in sharp contrast to that of Ogawa (2013). Under his two-stage game, when asymmetric countries in terms of productivity have opposite incentives toward terms of trade in order to manipulate the price of capital in their favor, there exists only a simultaneous-move Nash equilibrium. This difference arises from the fact that infinite repetition is able to support a wider range of behavior (e.g., a Stackelberg follower's strategy) that is not a Nash equilibrium of the one-shot stage game of the repeated tax-competition game.