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→Answer B2: Opportunistic sellers
=Answers to the 2009 Field Exam=
==Answer A1: R&D Integration(Mowery)==
===Part A===
Mowery, D.C. (2009), "Plus ca change: Industrial R&D in the Third Industrial Revolution", forthcoming, Industrial and Corporate Change.
Lamoreaux, N. and K. Sokoloff (2005), "Decline of the Independent Inventor: A Schumpeterian Story", NBER working paper *11654
Teece, D.J. (1986), "Profiting from technological innovation: Implications for integration, collaboration, licensing, and public policy," Research Policy.
Ziedonis, R.H. (2004), "Don't fence me in: Fragmented markets for technology and the patent acquisition strategies of firms", Management Science. pdf
==Answer A2: Competition, Innovation and Antitrust (Dal Bo)==
Whether the innovation is cheap or not is not first order germane. The important question is the appropriability regime. I will assume that the cheap innovation (making the phone red) is appropriable (i.e. there are no property rights associated with the colour red), and that the battery life innovation is patentable and that strong (perfect) IPR protection exists.
Then the red phone would indicate an introduction of differing qualities that are imitable at some (possibly zero) cost. This gives a Hotelling (1929) or Salop (1979) like model, assuming that customers have some preferences over quality. Perhaps a line from White to Red could indicate the distribution of customer preferences, the cost of innovation could be the cost of entry on the line, and the transport cost could present represent the lost utility of a customer away from thier ideal colour. We begin the game with two firms situated on White, one of which gets to 'spawn' another firm that locates on Red. The White-only competitor may spawn an entrant or other new entrants may enter the market.
Absent new entry, if there was only one firm at White and one at Red we would expect them to price to compete against each other exactly in the Hotelling model (given these location choices). However, the Bertrand competition at the White end of the line reduces price to marginal cost, and only customer whose valuation of a White above marginal cost can buy from them. This gives the player at Red, potentially at least, the rest of the market without competiting with players at White - the customer whose valuation of White is marginal cost would have to have a valuation of Red greater than or equal to marginal cost for the entire market to be served. However, as the Red player is a monopolist over this area he would rather price above marginal cost and earn positive profits which he does.
As the cost of entry is extremely low, I will assume it to be effectively zero. Then firms will enter and while there are a finite number of firm they locate so that they have space around themselves on the line, charge prices about above marginal cost and reap profits above zero. Once an infinite number of firms have entered the line will be saturated all firms will charge marginal cost and earn zero profits.
Given that the battery innovation has perfect property right protection around it (for 20 years) by assumption, we expect the that firm will have a monopoly on it. Thus, if there is no effect between the markets, Bertrand competition will continue for the White phones which will be priced at marginal cost and earn their firms zero profits, and the battery life phones will be monopoly priced and earn monopoly profits. If there is an effect between the markets, that is because of a taste for variety a change in the Battery phone's price will have an effect on not only the demand for Battery phones but also for White phones, then we have a Dixit-Stiglitz (1977) type model, except that we do not have a free entry assumption. With free entry firms would earn zero profits, but with costly entry (i.e. the cost of coming up with a comparable innovation to the Battery innovation), the Battery firm will earn positive profits. However, because of the demand effect, the battery firm will not earn monopoly profits, but something less. With free entry the number of firms will increase but remain finite in this model - firms enter until the customer's taste for variety is satiated. Likewise with costly entry but excess taste for variety we could expect more entry and more positive profits (to cover the cost of entry) until satiation.
The last answer (Part II) might also have considered price discrimination more generally - price discrimination is not inherently bad (actually it can be welfare improving) and may lead to positive profits.
After consulting Ernesto about this answer the following corrections should be made:
*The battery life extension (from 4hr to 6hr) was supposed to be a vertical differentiation question. The application of a horizontal model would be wrong. There was ordering of quality.
*The Red/White problem should have assumed that the innovator made their phone red (i.e. did not keep white).
**It is not clear that given the option to keep white would be exercised even if there where economies to scope. The economies would have to be sufficiently large to overcome the problem of competiting with yourself!
*The horizontal model should have used Hotelling for prices and profits, and the Salop for entry - Salop exists to study entry in Hotelling models.
*The final part could also have been argued using a horizontal differentiation model
**Differences in quality (or seperation in distance) would lead to positive profits and prices above marginal cost.
**Differentiation may improve social welfare as in Dixit-Stiglitz where customers have a taste for variety.
**Anti-trust with a duopoly would require collusion of some sort.
===References===
#'''[[Salop (1979) - Monopolistic Competition With Outside Goods |Salop (1979)]]''', "Monopolistic competition with outside goods", Bell Journal of Economics 10, 141-156. [http://www.edegan.com/pdfs/Salop%20(1979)%20-%20Monopolistic%20competition%20with%20outside%20goods.pdf pdf]
#'''[[Shaked Sutton (1982) - Relaxing Price Competition Through Product Differentiation |Shaked, A. and J. Sutton (1982)]]''', "Relaxing price competition through product differentiation", Review of Economic Studies 49, 3-13. [http://www.edegan.com/pdfs/Shaked%20Sutton%20(1982)%20-%20Relaxing%20price%20competition%20through%20product%20differentiation.pdf pdf]
==Answer B2: Opportunistic sellers==
[http://www.edegan.com/repository/2009%20B2%20Steve%20Question%20Answer.pdf Suggested answer here]
[http://www.edegan.com/repository/BPP%20Field%20Exam%20Question%20B2.2008.pdf More.]
==Answer C1: Bargaining over Power==
[http://www.edegan.com/repository/2009%20C1%20BPP%20Exam%20Solution%20Suggestion.pdf Proposed solution here]
==Answer D: Soft Drink Organization (Spiller)==
