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Winter (2003) - Understanding Dynamic Capabilities

2020-09-29T17:24:07Z

Maintenance script:

{{Article
|Has page=Winter (2003) - Understanding Dynamic Capabilities
|Has title=Understanding Dynamic Capabilities
|Has author=Winter
|Has year=2003
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
Winter, S. (2003), "Understanding dynamic capabilities", Strategic Management Journal, 24, pp.991-995. [http://www.edegan.com/pdfs/Winter%20(2003)%20-%20Understanding%20dynamic%20capabilities.pdf pdf]

==Abstract==

Defining ordinary or "zero-level" capabilities as those that permit a firm to "make a living" in the short term, one can define dynamic capabilities as those that operate to extend, modify or create ordinary capabilities. Logically, one can then proceed to elaborate a hierarchy of higher-order capabilities. However, it is argued here that the strategic substance of capabilities involves patterning of activity, and that costly investments are typically required to create and sustain such patterning - for example, in product development. Firms can accomplish change without reliance on dynamic capability, by means here termed "ad hoc problem solving." Whether higher-order capabilities are created or not depends on the costs and benefits of the investments relative to ad hoc problem solving, and so does the "level of the game" at which strategic competition effectively occurs.

Ziedonis (2004) - Dont Fence Me In

2020-09-29T17:24:07Z

Maintenance script:

{{Article
|Has page=Ziedonis (2004) - Dont Fence Me In
|Has title=Dont Fence Me In
|Has author=Ziedonis
|Has year=2004
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Ziedonis, R.H. (2004), "Don't fence me in: Fragmented markets for technology and the patent acquisition strategies of firms", Management Science, Vol.50, No.6, pp.804--820

@article{ziedonis2004don,
title={Don't fence me in: Fragmented markets for technology and the patent acquisition strategies of firms},
author={Ziedonis, R.H.},
journal={Management Science},
volume={50},
number={6},
pages={804--820},
year={2004},
abstract={How do firms avoid being fenced in by owners of patented technologies used, perhaps unknowingly, in the design or manufacture of their products? This paper examines the conditions under which firms expand their own portfolios of patents in response to potential hold-up problems in markets for technology. Combining insights from transactions cost theory with recent scholarship on intellectual property and its exchange, I predict firms will patent more aggressively than otherwise expected when markets for technology are highly fragmented (i.e., ownership rights to external technologies are widely distributed); this effect should be more pronounced for firms with large investments in technology-specific assets and under a strong legal appropriability regime. Although these characteristics of firms and their external environments have been highlighted in the theoretical literature, prior research has not explored the extent to which such factors interact to shape the patenting behavior of firms. To empirically test these hypotheses, I develop a citations-based fragmentation index and estimate the determinants of patenting for 67 U.S. semiconductor firms between 1980 and 1994. Accumulating exclusionary rights of their own may enable firms to safeguard their investments in new technologies while foregoing some of the costs and delays associated with ex ante contracting.},
discipline={Econ},
research_type={Measures, Empirical},
industry={},
thicket_stance={},
thicket_stance_extract={},
thicket_def={},
thicket_def_extract={},
tags={},
filename={Ziedonis (2004) - Dont Fence Me In.pdf}
}

==File(s)==

*[[Media:Ziedonis (2004) - Dont Fence Me In.pdf|Download the PDF]]
*[[:Image:Ziedonis (2004) - Dont Fence Me In.pdf|Repository record]]

==Abstract==

How do firms avoid being fenced in by owners of patented technologies used, perhaps unknowingly, in the design or manufacture of their products? This paper examines the conditions under which firms expand their own portfolios of patents in response to potential hold-up problems in markets for technology. Combining insights from transactions cost theory with recent scholarship on intellectual property and its exchange, I predict firms will patent more aggressively than otherwise expected when markets for technology are highly fragmented (i.e., ownership rights to external technologies are widely distributed); this effect should be more pronounced for firms with large investments in technology-specific assets and under a strong legal appropriability regime. Although these characteristics of firms and their external environments have been highlighted in the theoretical literature, prior research has not explored the extent to which such factors interact to shape the patenting behavior of firms. To empirically test these hypotheses, I develop a citations-based fragmentation index and estimate the determinants of patenting for 67 U.S. semiconductor firms between 1980 and 1994. Accumulating exclusionary rights of their own may enable firms to safeguard their investments in new technologies while foregoing some of the costs and delays associated with ex ante contracting.

==Review==

===Measures of thicket===

Patent thickets is measured using a citations-based Fragmentation index.
*Fragmentation for each firm (at a point in time) is equal to 1 minus the sum of squared shares of the firm's patent's citations that cite to other firms.
*The fragmentation is also normalized the number of the firm's annual cites divided by the number of a firm's cites minus 1.
**The definition claims to follow Hall (2002), but subscript notation is confusing - the bias correction formula in Ziedonis is: N(i)/N(i-1) with (i-1) as a subscript, but Hall formula is N(i)/[N(i)-1] with 1 not as a subscript. Presumably, the correction factor should be interpreted following Hall, for a firm with 10 cites, as: 10/(10-1).
*Drawbacks of the fragmentation measure are:
**A citation may be observed when there is no risk of infringement/need to license;
**A citation may not be observed when there is a risk of infringement/potential need to license another firm's patents.

:''"[The fragmentation measure] distinguishes between firms for which the anticipated costs and delays associated with ex ante contracting [licensing of patents] may render such an approach infeasible [high fragmentation value] and those for which ex ante contracting is a more viable strategy [low fragmentation value]."''

===Sample===

Size, data source, industries, geography:
*667 observations on 67 firms from 1980-1994.
**Firm data is drawn from the universe of U.S. semiconductor firms between 1980 and 1994 whose principal line of business is semiconductors and related devices (SIC 3674) recorded in Compustat between 1975 and 1996.
**Patent citations are drawn from MicroPatent database, and unique assignee names were assembled based on a variety of sources.

===Results===

:''"...larger firms and firms investing more heavily in R&D have a higher propensity to patent."''
*Firm size is significantly positively related to patenting (coefficient from 0.905-.705 depending on fragmentation controls)

:''"...capital-intensive firms do not patent more intensively than other firms in the sample (again, controlling for other factors) unless they build on fragmented pools of outside technologies...provides indirect evidence [that]...Firms building on technologies owned by a more concentrated set of parties may rely more heavily on mechanisms other than patents (such as joint ventures, alliances, and other ex ante agreements) to safeguard investments that are difficult to redeploy ex post."''
*R&D intensity is significantly positively related to patenting in models including only the Fragmentation index, but the sign of the effect changes to significantly negative when an interactions between Fragmentation and capital intensity are included.
**The total slopes of patenting with respect to R&D intensity (from model with the R&D intensity and interaction term with Fragmentation) are only positive when fragmentation is above the mean value of Fragmentation, >0.75.
*Results are robust to alternative models:
**That include a technological opportunity variable that counts number of semiconductor patents sought by applicants in US, Germany or Japan between 1980-1994;
**That allows for firm and year effects;
**That interacts fragmentation index with R&D spending;
**That allows for a firm fragmentation index based on a 3 year moving average instead of based on just the current year.

:''"[S]emiconductor firms’ decision to patent became less responsive to changes in their R&D investments during the era of strong patent rights; and capital-intensity emerges as a strong, significant predictor of these firms’ patenting behavior only under the “propatent” regime (supportive of the hypothesis that capital-intensive firms responded strategically to the legal reforms by amassing portfolios of patents)....however,...the shift in patenting behavior was not driven by capital-intensive firms per se, but by the subset of capital-intensive firms that draw on technologies owned by a disparate set of outside parties."''
*Coefficients on the log of R&D per employee decline in size and significant after 1986;
*In model without fragmentation measures, coefficients on capital intensity measures increase in size and significance after 1986 from 0.116 to 0.540;
*In models with fragmentation measures, the coefficients on the interaction of capital intensity and fragmentation before and after 1986 increases in size and significance from 1.143 to 2.138.

===Social Welfare Consequences===
:''"the results suggest that the distribution of rights to proprietary technologies may not only shape the expropriation risks firms face in the manufacture or sale of their products, but also how firms choose to safeguard their investments in light of those risks...Accumulating exclusionary rights of their own may enable firms to safeguard their investments while foregoing some of the costs and delays associated with ex ante contracting. In effect, these intangible assets provide firms with a flexible set of “hostages” for use in ex post license negotiations...By increasing the likelihood that the firm can threaten others with reciprocal suit, the firm may be able to avoid rent expropriation from external patent owners or, at least, to minimize its effects."''

===Dependent Variable and Model===
*Number of successful patent applications by a firm in a given year.
**A negative binomial model is used over Poisson model because a Lagrange Multiplier test favored a model in which the variance is proportional to the mean.
*Patent thicket measures in the model are:
**The fragmentation index described above;
**an indicator for observations with missing index values;
**an interaction term between the fragmentation index and capital intensity described below.
*The model accounts for variable expected to affect the propensity to patent:
**Firm size as measured by the log of employment at the firm;
**R&D spending in a given year divided by number of employees;
**Deflated Book value of a firm's capital investments in property, plant and equipment per employee (to proxy for investments in technology specific assets);
**An indicator for Texas Instruments that was unusually aggressive in patenting and enforcement;
**Time dummies;
**In some specifications, technological opportunity is measured with a variable that counts number of semiconductor patents sought by applicants in US, Germany or Japan between 1980-1994.
*The data is also split into sample of 36 firms present before and after 1985 to study impact of the strengthening of patent regime in 1982 and subsequent landmark legal decisions.

Williamson (1991) - Comparative Economic Organization The Analysis Of Discrete Structural Alternatives

2020-09-29T17:24:06Z

Maintenance script:

{{Article
|Has page=Williamson (1991) - Comparative Economic Organization The Analysis Of Discrete Structural Alternatives
|Has title=Comparative Economic Organization The Analysis Of Discrete Structural Alternatives
|Has author=Williamson
|Has year=1991
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

Williamson, Oliver (1991), "Comparative Economic Organization: The Analysis of Discrete Structural Alternatives", Administrative Science Quarterly, Vol. 36, No. 2. pp. 269-296 [http://www.edegan.com/pdfs/Williamson%20(1991)%20-%20Comparative%20Economic%20Organization%20The%20Analysis%20of%20Discrete%20Structural%20Alternatives.pdf pdf]

@article{williamson1991comparative,
title={Comparative economic organization: The analysis of discrete structural alternatives},
author={Williamson, O.E.},
journal={Administrative science quarterly},
pages={269--296},
year={1991},
publisher={JSTOR}
}

==Abstract==

This paper combines institutional economics with as- pects of contract law and organization theory to identify and explicate the key differences that distinguish three generic forms of economic organization-market, hybrid, and hierarchy. The analysis shows that the three generic forms are distinguished by different coordinating and control mechanisms and by different abilities to adapt to disturbances. Also, each generic form is supported and defined by a distinctive type of contract law. The cost- effective choice of organization form is shown to vary systematically with the attributes of transactions. The paper unifies two hitherto disjunct areas of institutional economics - the institutional environment and the institutions of governance - by treating the institutional environment as a locus of parameters, changes in which parameters bring about shifts in the comparative costs of governance. Changes in property rights, contract law, reputation effects, and uncertainty are investigated.

==Discrete Structural Analysis==

There is not a continuum of organizational forms:
*Firms are not extension of markets but employ different means
*Discrete contract law differences support and define each form
*Marginal analysis is concerned with second order effects - economizing is first order

The technology view suggest that no novel economizing issues occur within firms (i.e. there are still economies of scale and scope), and that firms are just instruments for converting inputs into outputs. In contrast, Williamson claims that:

"hierarch is not just a contractual act but is also a contractual instrument,
a continuation of market relations by other means"
-Williamson, 1991

Also, note that the hybrid form discussed here is not a loose amalgam of market and hierarchy, but posesses its own disciplined rationale.

==Contract Law==

Williamson again puts forward forms of contract law:
*Classical Contract Law (covered in [[Williamson (1979) - Transaction Cost Economics | Williamson (1979)]])
*NeoClassical Contract Law (new material covered below)

===NeoClassical Contract Law===

Is characterized by the excuse doctrine and forebearance

Key characteristics are:
*Parties maintain autonomy but are bilaterally dependent
*Continuity of the relationship and adaptation are stressed
*Hybrid modes of contracting are supported
*There is mediation:
**For example in regulation, the regulator mediates
**Arbitrators
*Franchising requires added supports (because of mediation problems)

There are three kinds of disturbances:
*inconsequential - deviations are too small to recover costs of adjustment
*consequential (mid range)
*highly consequential

For consequential adjustments, the contract is a framework, providing guidance and norms. Contracts which support consequential adjustments:
*explicitly contemplate unanticipated disturbances which require adaptation
*provide tolerance zones in which misalignments will be absorbed
*require information disclosure and substantiation if an adaptation is needed
*provide for arbitration if voluntary agreement fails.

Again, arbritation has advantages (ease of education, etc), but if the disturbance is too large, arbitration may fail and result in litigation. Here there an excuse doctrine to appeal to, for example:
*impossibility
*frustration
*mistake
*manipulative interpretation
*duress
*undue influence
*bankruptcy laws
*and so forth.

Therefore there is a trade off between incentives and reduced opportunism. If the disturbance was truely unforeseen then a strong excuse doctrine reduces the gains to opportunism (while maintaining performance incentives). If excuse is routinely granted, then planning to avoid aversity will be reduced.

Arbitration is very costly, and the range of disturbances it can support is limited. As disturbances get very large, this framework is no longer optimal.

==Forebearance==

The firm is a "nexus of contracts", but with importance differences. Specifically it has fiat (the power to order something to be done). This may have its origins in the employment contract, and/or that of forebearance. Forebearance is the court's unwillingness to hear disputes between internal divisions of a firm.

"Hierarchy is its own court of ultimate appeal"
-Williamson, 1991

The "business judgement rule" holds absent bad faith - directors are not liable for their corporation's mistakes. There is a quasi-jurisdicational barrier.

The court still hears worker's rights complaints etc, but does not interfer in the operation of firms generally.

Unions may refuse to bring individual grievences to arbitration as this:
*Discourages day-to-day cooperation
*The claim may endanger group interests
*The union is an arbitrator of a relationship with acceptable bounds...

To get fiat, internal incentives must be flat - so that workers incentives do not conflict with their orders.

The underlying rationale for forebearance is:
*parties have deep knowledge of dispute and efficient solutions (it would be costly to communicate them, and they may not be verifyable outside the organisation)
*Permitting internal disputes in courts would undermine the nature of the firm.

==First Order Economizing==

First-order economizing is effective adaptation and elimination of waste. Economics was (is) too preoccupied with issues of allocative efficiency (marginal analysis is used), to the neglect of organizational efficiency (i.e. the choice of organizational form).

==Dimensional Governance==

The discrimating alignment hypothesis is that transactions (which differ in their content) are aligned with governance structures (which differ in their costs and competencies). Market, hybrid and hierarchy differ in contract law respects, but there is more to governance than just contract law. Adaptability and incentive/control instruments are key.

===Adaptation===

Economic problems arise as a consequence of change. The price system is an efficient mechanism (in the market) for communicating information and inducing change (Hayek 1945). However, firms also adapt to change (Barnard 1938), and concious, deliberate, and purposeful cooperation is realized through formal organization (firms). When the price is a sufficient statistic, then the market excels. The sort of adaptation that are supported through price signals are autonomous (<math>A\,</math>) changes. However, some disturbances require coordinated (in later papers refered to as cooperative) responses, lest the components operate at cross purposes. These are <math>C\,</math> changes. Problems in addressing <math>C\,</math> changes include:
*If one party coordinates, then they may use their position strategically for their own gain
**They may distort information, or disclose it selectively or incompletely.
*There may be self-interested bargaining (which is costly)
*Maladaption itself is costly.

Fiat has advantages for <math>C\,</math> changes.

===Instruments===

With <math>A\,</math> changes, incentives are aligned by prices in markets. They are also high-powered. Autonomous traders can't make claims against other autonomous traders.

In contrast <math>C\,</math> changes give advantages to hierarchies, but this comes at some cost. Divisions (or individuals) can misreport information to effect strategic redistributions. Internal organization degrades incentive intensity, which results in added bureaucratic costs (note that incentive intensity may be deliberately suppressed to prevent it getting in the way of bilateral adaptation). There is also a differential reliance on controls. To offset the loss of incentives, firms need greater controls:
*monitoring
*career rewards
*penalties

===Hybrids===

Markets and hierarchies are extreme forms. In the middle are hybrids. They are supported by neo-classical contract law, and display intermediate values with respect to:
*<math>A\,</math> changes - ownership autonomy is preseved giving strong incentives.
*<math>C\,</math> changes - bilateral dependency adds safegaurds (information disclosure, dispute-settlement apparatus)
**But these dull the incentives
**And the are more costly than in firms (proposals need more documentation, arbitration is more costly than fiat, information is harder to access and validate, there are less instruments to promote team orientation)
**Extreme changes will break the organizational form
*Contract incompletness - martkets have complete, firms have very incomplete
*Adminstrative apparatus (see above).

==Discriminating Alignment==

Discriminating alignment uses both governance costs (detailed above) and asset specificity arguments.

===Asset Specificity===

Asset specificity is the degree to which an asset can [not]
be redeployed to alternative uses and by alternative users
without sacrifice of productive value.
-Williamson, 1991

Six distinctions are made:
#Site specificity (to economize on inventory and transportation)
#Physcial asset specificity (custom dies etc)
#Human asset specificity (learning by doing)
#Brand name capital
#Dedicated assets - discrete investments made in a general purpose plant for a particular customer
#Temporal specificity - technological non-seperability (e.g. timely response of humans)

The first five forms (in particular) create bilateral dependency.

===Alignment===

Ignoring the revenue and production-cost consequences of specificity, one can plot the governance costs as a function of the asset specificity.

Hybrid forms, sacrifice incentives but assure that the parts are better at not working at cross-purposes. Selling in the market gets full incentives, but free-riding on the brand name and other suboptimization may result. Franchising gives greater autonomy than hierarchy but addes rule and surveillance as compared with markets: Suboptimizating is reduced relative to markets, and incentives are sharpened. Though not that local autonomy may get in the way of global adjustments and vice versa. For example, franchisees can not reduce costs by using local materials if this would undermine the global brand.

==Comparative statics==

Noting that the choices are discrete, the paper provides some 'comparative statics' with respect to property rights, expropriation, contract law, reputation effects and uncertainty.

===Property Rights===

Property rights consist of three elements:
#The right to use the asset
#The right to appropriate returns from the asset
#The right to change the asset's form and/or substance

There are two security hazards associated with property rights: expropriation by government and expropriation by commerce (rivals, suppliers, customers).

====Expropriation by Government====

Issues of credible committment are pertinant. If property rights are subject to occasional reassignment (and full compensation is not paid at each instance), then strategic considerations include:
*Reallocating wealth (investing in things that can not be expropriated like consumption) away from long-term (non-moveable) assets
*Incentive to adapt are muted

The government will have to bear a larger durable investment burden. Note that is can be difficult to commit. Previous renaging may prevent future committments from being believed. The king (or authority) must be subject the the same law as the everyone else, and committment involves changing the institutional environment in a way so that it can not be unchanged again.

====Leakage====

Value may be appropriated or disappated by rivals (etc). Weak appropriability regimes (c.f. [[Teece (1986) - Profiting From Technological Innovation | Teece (1986)]]) mean that:
*Ex ante investment incentives are impaired
*Ex post incentives to embed investments in protective governance structures are impaired.

Vertical or lateral integration offers protection.

===Contract Law===

If excuse doctorine were to become too strict or too lax this would affect investment incentives. This was covered above.

===Reputation Effects===

Non-heirarchical contracts may use reputation effects to lower opportunism. This would increase the use of hybrid contracting relative to hierarchy. Note that ethnic communities with a high degree of solidarity often enjoy hybrid contracting advantages.

===Uncertainty===

Greater uncertainty could come from more disturbances or more important disturbances. The hybrid mode is most susceptible to such an increase. Because adaptations can not be made unilaterally, they take time (and cost more). At some level the disturbances could come so fast that the next arrives before the last has been dealt with. Thus the hybrid mode may be infeasible at very high levels of uncertainty. These "timelines" arguments also impact R&D joint ventures, unless they are especially designed to support quick responsiveness.

===Simultaneous Parameter Shifts===

The paper points out that using policy to address a single factor in isolation may fail. Suppose that privatization reform required banking and property rights together, then introducing only banking policy would have no effect.

Williamson (1999) - Public And Private Bureaucracies

2020-09-29T17:24:06Z

Maintenance script:

{{Article
|Has page=Williamson (1999) - Public And Private Bureaucracies
|Has title=Public And Private Bureaucracies
|Has author=Williamson
|Has year=1999
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

Williamson, Oliver E. (1999), "Public and Private Bureaucracies: A Transaction Costs Economics Perspective", Journal of Law, Economics and Organization, Vol 15, March pp. 306-342. [http://www.edegan.com/pdfs/Williamson%20(1999)%20-%20Public%20and%20Private%20Bureaucracies.pdf pdf]

==Abstract==

No abstract available at this time.

==Vocabulary==

Probity - Complete and confirmed integrity; uprightness. In this paper: "the loyalty and rectitude with which the foreign affairs transaction is discharged".

==Introduction==

The public finance view is that agencies are omnipotent, omniscient and benevolent instruments,

The property rights view of public agencies is that they are inefficient and that this inefficiency can only be rectified by correctly assigning property rights.

The transaction cost view is that public agencies are a mode of governance which is well suited for some tasks and not others.

This paper considers the discrete structural attributes that define and differentiate public bureaus.

==Transaction Cost Politics==

The seperation of powers in government auger against efficiency - the seperation of powers makes laws hard to enact and yields over formalized bureaucracies. Moe (1990) makes the following points:
#A comparison between markets and hierarchies does not apply in the public sector - there are no markets for many goods produced.
#There is not a presumption of efficiently structured relationships because:
##Political actors are unable to sell their rights to exercise authority
##The need for compromise gives rise to expediency and not efficiency
#Trade is coercive not free - there are no assurances of mutual gains.
#Asset specificity does not apply perhaps?

Options in evaluating public agencies include the "zero transaction cost criteria" of North (1990) or the "remedialness" criteria.

==Questions and answers==

#What is the basic transaction cost setup - compare feasible modes of organization based on an economizing criteria
#What added hazards are there in the public sector - probity, at least in sovereign transactions
#What structural attributes deals with these hazards - added staffing, leadership and their process ramifications
#Can a private bureau replicate a public one, perhaps with regulation - No, it is impossible

==Key attributes of Transaction Cost Economics==

===Human Actors===

Human actors have bounded rationality and will engage in opportunism. TCE supposes that actors can look ahead to see these hazards and factor them into organization design.

===Governance===

The transaction includes three dimensions that are crucial to a unit of observation (Commons, 1932):
#conflict
#mutuality
#order

The discriminating alignment hypothesis aligns transaction attributes to governance structures to economize. This involves:
#Identifying the key attributes that differ across transactions
#Stating the core trade-offs of organizations
#Identifying the structural attributes that differ between governance structures

Transaction cost economizing is most important with respect to adaptations, which are either autonomous or cooperative (see [[Williamson (1991) - Comparative Economic Organization The Analysis Of Discrete Structural Alternatives | Williamson 1991]]). Governance systems that feature autonomy encourage independence and enterprise, whereas those featuring cooperation encourage compliance and mission orientation.

Sub goals allow for specialization in a firm, but bring conflict with larger goals. Opportunism complicates this by adding strategic effects (as opposed to instrumental). This does doesn't matter without identity (competition solves it), but with identity continuity considerations are needed - essentially there must be long term contracts. As maladaption hazards become great, unified ownership will supplant interfirm contracting.

Market mode has high incentives, low administrative controls and legalistic dispute settlements. Hierarchies have low incentives, high administrative controls, and fiat. Hybrids are in between.

===The Schema===

*<math>k\,</math> is the index of contractual hazard (think: "degree of asset specificity")
*<math>s\,</math> is the contract safegaurds (think: degree to which the contract supports adaptations, through arbritation or fiat)

'''The Williamson (1999) Schema'''

A (unassisted market)
k=0 /
/
/ B (unrelieved hazard)
\ s=0 /
\ /
k>0 \ / C (hybrid contracting)
\ /
\ / Market Support
s>0 \ /
\
\ Administrative Support
\
D (internal organization/firm)

===The Remediableness Schema===

Frictionless ideals can not be implemented. The remedialness criterion holds that:

"[a]n extant mode of organization for which no superior
''''feasible'''' alternative can be decribed and ''''implemented''''
with expected net gains is ''''presumed'''' to be efficient.
-Williamson, 1999

All that we can ask is that farsighted economic actors do their best, given their limitations.

There are the following caveats:
*Differential implementation costs should be included in the calculus
*There may be unacceptable initial conditions
*There may be unacceptable operating practises
*Conceptual error
*Pathology is possible,

Unacceptable initial conditions can be general (corruption allows implementation) or specific (e.g. voting rights only assigned to a portion of the population). Strategic practices that prevent entry or limit rivals matter. As does a mistaken conceptual calculus (i.e. judging anti-trust without understanding natural monopolies). Finally, an entity may take on a life of its own, far from its original envisioned purpose.

==Public Sector Transactions==

The paper identifies six types of transactions carried out by public bureaus.
#Procurement - special circumstances aside government should rarely produce its own needs; competition provides safegaurds for mundane procurement and procurement involving asset specificity is apt to be politicized.
#Redistributional - broadly based can be privatized but narrow focused (or special interest) redistribution is liable to capture and is highly politicized.
#Regulatory - These are beset by asset specificity problems. Rate of return regulation is often best. Regulation to deal with information asymmetries is often highly politicized.
#Sovereign transactions - see below.
#Judiciary - an independent judiciary infuses confidence in investment and contract, but nevertheless judiciaries often have relationships with politics. This is beyond the scope of the paper.
#Infrastructure - This is mainly a matter for state and local government.

===Sovereign Transactions===

Transaction cost analysis considers hazard mitigation through ex-post governance. With incomplete contracts, solving problems through ex ante incentive alignment is untenable. Governance mechanisms therefore provide:
*ex post gap filing
*dispute settlement
*cooperative adaptation

Sovereign transactions have two contractual hazards:
*Asset specificity
*Probity

Asset specificity comes through human assets, and is resolved by:
*added security of employment
*more fully developed information disclosure
*refined dispute resolution mechanisms

Probity, here defined as the loyalty and rectitude with which the foreign affairs transaction is discharged, is key. It has three parts: vertical, horizontal and internal. Vertical is the relationship between the president and the agency, horizontal is the relationship with other agencies, and internal is internal to the agency.

The underlying principals associated with sovereign transactions are:
#abiding respect for the mission
#reliable responsiveness to the president
#accurate communication to counterparties of intent.

Williamson goes on to argue that only within a public bureau with low powered incentives, meticulous implementation of protocol, and high stability of employment, can probity be assured, also noting that autonomous adaptations will be low. Operating cost excesses are essentially irrelevant, and third order. Specifically, note that treason is a the punishment for violating probity in a public bureau, whereas termination of employment is the private equivalent.

Adaption entials the following steps:
#the occasion to adapt needs to be disclosed
#alternative identified
#ramifications worked out
#best adaptation decided
#choosen adaptation communicated and accepted
#adaptation implemented
#follow up assessments
#sequential adjustments

Holdup is in (5), but probity operates throughout.

Private implementation is deemed impossible, on the grounds of insufficient probit gaurantees. Regulation is also dismissed, partly on the basis of control difference of both omission (the regalator is one step removed) and commission (the regulator is positioned between the president and the firm), partly on the basis of leadership (the president may not be able to appoint his own person to head the regulator), and operational complaints (how does the government know that it is properly informed).

Williamson (1979) - Transaction Cost Economics

2020-09-29T17:24:05Z

Maintenance script:

{{Article
|Has page=Williamson (1979) - Transaction Cost Economics
|Has title=Transaction Cost Economics
|Has author=Williamson
|Has year=1979
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

Williamson, Oliver (1979), "Transaction-Cost Economics: The Governance of Contractual Relations", Journal of Law and Economics, Vol. 22, No. 2. (Oct.), pp. 233-261. [http://www.edegan.com/pdfs/Williamson%20(1979)%20-%20Transaction%20Cost%20Economics.pdf pdf]

@article{williamson1979transaction,
title={Transaction-cost economics: the governance of contractual relations},
author={Williamson, O.E.},
journal={Journal of law and economics},
volume={22},
number={2},
pages={233--261},
year={1979},
publisher={JSTOR}
}

==Abstract==

The new institutional economics is preoccupied with the origins, incidence, and ramifications of transaction costs. Indeed, if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting. But despite the growing realization that transaction costs are central to the study of economics,1 skeptics remain. Stanley Fischer's complaint is typical: "Transaction costs have a well-deserved bad name as a theoretical device... [partly] because there is a suspicion that almost anything can be rationalized by invoking suitably specified transaction costs." Put differently, there are too many degrees of freedom; the concept wants for definition.

==Vocabulary==

"Opportunism is a variety of self-interest seeking but extends simple self-interest
seeking to inlcude self-interest seeking with guile. It is not necessary that all
agents be regarded as opportunistic in identical degree. It suffices that those who
are less opportunistic that others are difficult to ascertain ex ante and that, even
among the less opportunistic, most have their price."
-Williamson, 1979, Footnote 3, p234

Opportunism - is what we would now call rational (selfish) utility or profit maximization.

Veridical - truthful (used in the context of differentiating between multiple truthful outcomes in Williamson)

==General Concensus on Transaction Costs==

The is agreement on:
#Opportunism is a central concept in the study of transaction costs
#Opportunism is especially important when there are transaction-specific investments in human or physical capital.
#Efficient processing of information is important and related
#The assessment of transaction costs is a comparative institional undertaking

The paper is primarily concerned with intermeditate-product market transactions, and deals with the market, hybrid and hierarchy modes of organization.

==Three-way Classification of Contracts==

===Classical Contract Law===

Classical contract law is concerned with enhancing discreteness and intensifying presentiation, where presentiation means "make or render present in place or time; to cause to be percieved or realized at present". It does this by:
*Considering the identities of the parties as irrelevant
*Carefully delimiting the nature of the agreement (and giving precedence to formal over informal terms)
*Narrowly prescribing remedies
*Discouraging third party participation
*Creating self-liquidating transactions

===Neoclassical Contract Law===

For long term contracts under uncertainty, presentiation is likely to be prohibitively costly or impossible. There are several types of problems that can arise:
#Not all future contigencies can be anticipated
#Appropriate adaptation may only be possible after the new circumstances have arisen
#There may be veridical disputes when state-contigent claims are made (note that this is particularly problematic when parties are opportunistic).

The remedies include:
*Forgoing the contracts altogether
*Vertical intergration, so disputes can be internalized and solved by fiat
*A different contracting relationship that preserves trading and give additional governance might be devised.

In the last case, a (predesignated) third party has advantages over litigation. Specially an arbitrator can:
*Act quickly (relative to the courts)
*Use informal education from both parties (i.e. isn't contrained by the evidence and rules of proceedings)
*Enable continuity of the relationship (as opposed to termination of the contract by the courts)

===Relational Contracting===

Progressively increasing the duration and complexity of the contract leads to a need for a more transaction-specific governance structure. This is relational contracting. The relation:
*Is a minisociety of norms beyond those centered on the exchange
*Has the entire relationship as its reference point, rather than just the contract terms

==Economizing==

This is the criterion for organizing commercial transactions. It has two parts:
#Economizing on production expense
#Economizing on transaction costs

The object is to economize on the sum of the two parts.

"When transaction costs are negligble, buying rather than making
will normally be the most cost-effective means of procurement."
-Willimson, 1979

When procurement expense is small relative to transaction costs, choosing the right governance structure is the first and most important part of the optimization. This is attraction of internal procurement of recurrent 'idiosyncratic' transactions, as market trading is "shot through with appropriable quasi-rent hazards" for these types of transactions.

==Transactions==

Generally one should assume the simple contract types will use use simple governance relationships, and complex ones complex governance relationships. Using a complex governance for simple contracts incurs unneeded costs, and simple governance for complex contracts invites strain.

We now turn to the types of contract, noting that uncertainty, frequency, and the extent to which durable transaction-specific investments are made. First though, we consider transaction specificity.

===Transaction Specificity===

To what degree are investments in transaction-specific expenses made?

Unspecialized investments pose few hazards: There are alternative sources of buyers and sellers. Problems arise when the specific identity of the parties has cost-bearing consequences. These are 'idiosyncratic' transactions. This might happen because:
*The identies are important from the outset - one party makes a specific investment to enter the contract and is then locked in.
*Human capital becomes specialized by training or learning by doing
*Something happens at the buyer-seller interface - i.e. communication is enabled by familarity/knowledge

Note that personal integrity and reputations can both serve as checks against opportunism,

The key features of transaction specific investments are:
*They occur over long terms
*The large numbers competition is transformed into bilateral monopoly
*Intertemporal efficiency requires adaptation. (many spot contract are not sufficient as they prevent investment).

A clause along the lines of:

"I agree to behave responsibly rather than seek individual advantage when an occasion to adapt arises"

Would suffice in the absense of opportunism. But humans make false and misleading statements!

Idiosyncratic goods are those where tranaction specific investments in human or physical capital are made. A governance structure to attenuate opportunism is needed here.

Examples in practice include:
*The purhase of a specialized component
**Assume that the specialized version is needed, and the alternative in its next best use is lower
**Assume that scale economies require a significant investment be made
**Assume that alterative buyers are sparse
*The proximate location of plant
**So that transport and flow-process efficiencies arise
**Long life and a unique location are needed
*Human capital that involves tacit knowledge
**Established character and trust may mitigate this problem - see Babage's example on p243/4.

Crucially, parties must remain in a continuing relationship - for these parties a court room is a detrimental to the relationship.

===Characterizing Transactions===

Assume that uncertainty exists to some intermediate degree, that supplier intend to be in business on a continuing basis, that potential suppliers are numerous, and that investment refers to investment by suppliers, then the following is the classification:

Frequency:
*one-time (not important and so not analyzed further)
*occasional
*frequent

Investments:
*Non-specific
*Mixed
*Idiosyncratic

Governance structures:
*Non-transaction-specific
*Semi-specific
*Highly specific

The market is the classic nonspecific governance structure within which
"faceless buyers and sellers meet for an instant to exchange
standardized goods at equilibrium prices."
-Williamson '79, citing Lowry '76

Identity matters in in specific transactions.

====Market Governance====

Markets:
*Are the main governance for non-specific transactions
*Use the traders own experience and prices
*As investments become more specific reputation and formal ratings matter
*Is the medium of 'sale' rather than 'contract'
*Identity of parties is of negligible importance
*Formal terms of the contract apply
*Litigation is for settling claims, not to sustain the relationship

====Trilateral Governance====

This mode is needed for occasional transactions with mixed and highly idiosyncratic investments. Here:
*There are strong incentives to see the contract through
*As the specificity increases, so do the incentives to sustain the relationship
*Setup costs often can not be recovered
*The cost of bilateral governance is prohibitive
*Uses third party assistance - an arbitrator

====Bilateral Governance====

This mode applies to reoccuring transactions with mixed and highly idiosyncratic investments. Here:
*Nonstandard nature makes markets hazardous
*Reoccuring nature justifies the costs of the additional governance over trilateral governance

It is important to differentiate between when autonomy is maintained and the parties are integrated (and subject to fiat). Highly idiosyncratic investments do not have scale economies and therefore integration is best. With mixed investments outside procurement might be favoured by scale economies. Outside procurement is also good for cost control, but poor for adaptation.

In the case of outside procurement, some the degree of allowable adjustments should be restricted. Price adjustments are more problematic than quantity (because of the strategic nature and direct gains). Excalator clauses, related to economic conditions, are one option. But price adjustments, in particular, must be able to be shown to result from exogenous circumstances. Validitation is important.

With vertical integration, adaptions can be made without the need to change (or even consult) agreements. The paper refers to vertically integrated bilateral governance as unified governance

===The Match of Governance Structures===

The following table lays out the match:

'''Investment Characteristics'''
-------------------------------------------
|NonSpecific | Mixed | Idiosyncratic |
-------------------------------------------
| | |
Occasional | Market | Trilateral |
| | |
'''Frequency''' -------------------------------------------
| | | |
Reccurent | Market | Bilateral | Unified |
| | | |
-------------------------------------------

===Uncertainty===

Different governance structures may affect the time required to reach an equilibrium when there is uncertainty in the relationship, but otherwise any will do.

In market governance if the uncertainty increases:
*The need for adaptations will increase
*The time to deal with each adaptation decreases
*Adaptations become more important
*If adaptation can be sacrificed for standardization, then markets are good
*Otherwise as adaptations increase the need for a more specialized governance structure increases.

==Other Applications==

===Labor===

'''Non-specific transactions''' : Migrant farm labourers for example. Market governance applies.

'''Mixed-transaction''': Large numbers of workers acquire an intermediate amount of firm-specific skill.

Here:
*Firms should redesign jobs to standardize them, but this may (will) sacrifice least-cost production.
*Collective bargaining puts limits on claims and curbs small-numbers opportunism.
**Ed's claim: It also provides a single bargaining problem (which may reduce transaction costs - this should be traded off against bargaining power)
*Promotion ladders should be long and thin and based on merit (not seniority)

'''Highly Idiosyncratic transactions''': Workers whose great firm-specific experience accrue great benefits. "Merger" is prevented by laws against indenture. Nonvested, long term reward schemes and severe punishment if either party seeks unilateral termination should be used.

===Natural Monopoly===

Williamson recommends rate of return regulation, providing there are transaction-specific investments (there aren't in trucking for example, according to Williamson).

===Family Law===

Should adjudication be expanded to help govern family relationships? Clearly the relationships should be ongoing and relations are idiosyncratic. Therefore, no, not according to Williamson, as it would discourage investment.

===Capital Market Transactions===

"Ease of verification" should be substituted for "degree of transaction specific investment".

Williamson (1983) - Credible Commitments Using Hostages To Support Exchange

2020-09-29T17:24:05Z

Maintenance script:

{{Article
|Has page=Williamson (1983) - Credible Commitments Using Hostages To Support Exchange
|Has title=Credible Commitments Using Hostages To Support Exchange
|Has author=Williamson
|Has year=1983
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

*Williamson, Oliver, (1983), "Credible Commitments: Using Hostages to Support Exchange", The American Economic Review, Vol. 73, No. 4. pp. 519-540 [http://www.edegan.com/pdfs/Williamson%20(1983)%20-%20Credible%20Commitments%20Using%20Hostages%20to%20Support%20Exchange.pdf pdf]

@article{williamson1983credible,
title={Credible commitments: Using hostages to support exchange},
author={Williamson, O.E.},
journal={The American Economic Review},
volume={73},
number={4},
pages={519--540},
year={1983},
publisher={JSTOR}
}

==Abstract==

Credible commitments and credible threats share the following common attribute: both appear mainly in conjunction with irreversible, specialized investments. But whereas credible commitments are undertaken in support of alliances and to promote exchange, credible threats appear in the context of conflict and rivalry.' The former involve reciprocal acts designed to safeguard a relationship, while the latter are unilateral efforts to preempt an advantage. Efforts to support exchange generally operate in the service of efficiency; preemptive investments, by contrast, are commonly antisocial. Both are plainly important to politics and economics, but the study of credible commitments is arguably the more fundamental of the two.

==Summary==

This paper is concerned with using hostages to prevent opportunistic behaviour in incomplete contracts with relational-specific investments. However, I do not believe that the arguments are valid. Specifically if it is subgame perfect to "execute the hostages" (or to return them), then you do. End of story. In Williamson's defense, the paper may pre-date the notion of sub-game perfection.

I, therefore, do not summarize this paper here. Sorry Ollie.

Williamson (1976) - Franchise Bidding For Natural Monopolies

2020-09-29T17:24:04Z

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{{Article
|Has page=Williamson (1976) - Franchise Bidding For Natural Monopolies
|Has title=Franchise Bidding For Natural Monopolies
|Has author=Williamson
|Has year=1976
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

*Williamson, Oliver E. (1976), "Franchise Bidding for Natural Monopolies-in General and with Respect to CATV", The Bell Journal of Economics, Vol. 7, No. 1 (Spring), pp. 73-104. [http://www.edegan.com/pdfs/Williamson%20(1976)%20-%20Franchise%20Bidding%20for%20Natural%20Monopolies.pdf pdf]

==Abstract==

The orthodox attitude among economists toward regulation is one of "disdain and contempt". The general reputation is not undeserved, but it fails to discriminate among different economic activities and different types of regulation. An effort to distinguish between those circumstances in which regulation, in some form, is immanent from those in which market modes can be made to work relatively well is needed. Discriminating assessments of regaulated industries (extant and proposed) will be facilitated by examining transactions in much greater microanalytic detail than has been characteristic of prior studies of regulation and proposed alternatives thereto. My examination of franchise bidding for natural monopoly discloses that this mode suffers form much more severe contractual disabilities than have hirtherto been acknowledged. Faced with both technological and market uncertainties, CATV, circa 1970, does not appear to be among the circumstances for which unassisted franchise bidding can be expected to work well.

==Vocabulary==

De minimis - About minimal things; often used to discuss levels of risk that are too small to be concerned with
Immanent - To remain within, used to suggest that an essence (or divine being) manifest in and through all aspects
Lacunae - Missing sections of text
Sanguine - Redish brown, or similar to a drawing done in these colours, or of blood, or optimistic (think a red faced happy person).
Seriatim - In series or order
Vitiated - To reduce the value or impare the quality of something

CATV - In this context: Community Antenna Television

==A Franchise Scheme==

Franchising in this context is the competitive bidding (of some form) for a long term contract to operate a monopoly.

Franchise bidding is examined as an alternative to regulation in the provision of public services for monopoly supply. Circa 1970 franchise assignment differed in degree from regulation, not in kind. The paper considers the implications of the 'microanalytic' detail, and its importance. Specially it examines the contracting. The former literature was based on anti-trust notions, whereas this paper takes a transaction cost approach (a more legal approach to economics). Choice among the relevant modes involves considering:
#The costs of ascertaining and aggregation consumer preferences through solicitation
#The efficacy of scalar bidding
#The degree to which technology is well developed
#The degree to which incumbent suppliers develop idiosyncratic skills
#Demand uncertainty
#The extent to which long-lived specialized equipment is involved
#The susceptibility of the political process to opportunistic representations (and the differential proclivity to make them)

The more confidence one has in contracting (both at the outset and at renewals), the more one should favour the market modes. Regulation should be favoured more under incomplete contracting.

The prefered mode may change - perhaps monopoly is needed to start with, but not later. But there may be transactional problems in shifting modes.

===Foundations===

The following foundations are important:
*The economics of (e.g. Coasian) property rights
*Distinguish between ex ante and ex post
**There may be ex ante competition between bidders but ex post a monopoly on supply
**Ex ante efficiency appears possible with a large number of noncollusive bids
**Ex post there will be a decreasing cost activity with a monopoly
*Distinguish between lump sum payments for contracts and lowest price per unit
**Lump sum payments capitalize the monopoly rents - but the service will then be priced on monopoly terms
**Lowest per unit cost may approximately equal marginal cost (with out TCE considerations)

Key people:
*Stigler: favoured lowest per unit competitive bidding
*Demsetz: stripped away "irrelevant complications" including:
**Durability
**Uncertainty
**Irrational behaviour
*Posner: introduced a solicitation phase

Note that "irrelevant complicants" may lead to regulation:
*All modes are equivalent if steady state conditions emerge
*Uncertainty could be initial or regarding adaptability - the later would favour regulation (the former is not a problem)

==Three Types of Contract==

===Once and For All Contracts===

There are two types: Complete contingent claims and incomplete. It is generally accepted that the former is impossible. Thus incomplete contracts can lead to opportunism as discussed below.

===Incomplete Long Term Contracts===

Adaptation would be permitted through renegotiation with penalty clauses. Such contracts are not self-enforcing unless the profit consequences:
*are fully known to both parties
*can be displayed at low (or no) cost to an impartial arbitrator
*Otherwise manipulation of the data will results (strategic signalling)

Aggressive opportunism can be partially mitigated by informal sanctions, provided that there are mutual long run benefits. Particularly problematic are long run incomplete contracts where:
*The initial award criterior is apt to be artificial or obscure
*Execution problems are apt to develop in:
**Price-cost
**Other performance
**Political respects
*Bidding partity between the incumbent and entrants at renewal will not be achieved.

To overcome problems with the initial award criteria, Posner recommended a solicitation phase that:
*Applicants would seek to obtain actual contracts from subscribers before bidding
*The bid would be the contract terms secured
*The winner would be the applicant with the largest gauranteed subscriber committments.

This has the following benefits:
*A political body does not need to determine the quality level
*Quality and price can vary at the competition stage

However it has the following cons:
*Subscribes must assess a service before recieving it (i.e. there are bounded rationality constraints)
*It aggregates preferences in an arbitrary way
*Leads to problems in execution - what if the provider can not meet the solicited offer?
*If demand varies so will price, so a pricing schedule must be provided
*Adventurous bids may be made by those most able to deal with political risk

Considering execution problems, it may be hard to displace a franchise, even one who fails to perform at the agreed level because:
*Long term contracts are to encourage investment in long-lived assets, this incentive is nulled if the contracts can be easily cancelled.
*Litigation delays and costs
*Award agencies may be loathed to admit a mistake

Considering price-cost relationships: under uncertainty fixed price bids are unsatisfactory. Flexibility can be built in through correlation to an index, or a move to cost-plus, but then the degree of monitoring required increases, which also gives rise to defective incentives.

Considering other performance attributes: quality of service etc, needs to be monitored. Individual consumers are unlikely to have the data, so set up costs and labour economies are obtained through specialization of this function - indicating centralization and regulation. Penalty clauses may help avoid extreme cases. Note that an agency may be unable to discern ex ante which of the three following possibilities is best:
#High performance, long-lived equipment
#Backup equipment
#Investment in maintenance personnelle

Considering Politics: Political skills are important to assignees as they may assist in the construction of winning bids (if only because winners know how to navigate the bureaucracy). If franchising encourages greater profits, then there are greater rents to be captured, which gives incentives to invest in non-market strategies.

Considering lack of bidding parity: This is discussed later, but clearly incumbents may possess advantages that help them to win again.

===Recurrent Short Term Contracts===

Short term contract can help facilitate adaptive sequential decision making. If contract renewal is effacious (this precludes the need for long term investment) then opportunism can be avoid and this approach is best. But this requires parity among bidders. Parity may not be achievable because:
*Human capital will almost certainly accrue - this becomes a relational specific investment
**Some part of it is almost certainly non-fungible
**Employees may resist transfer to a new employer
**The paper lists four differences between experienced and non-experienced workers (equipment idiosyncracies, processing economies, team accomodations, communication idiosyncracies) on page 88
*Unspecialized plant and equipment (long term) could be sold from the incumbent to the entrant but there may still be costly haggling as valuation can not be assured to be value minus amortization (which itself only gives an upper bound anyway). Note that this also would give perverse incentive to maintain equipment
**Also, there may be ways to account for value differently (strategically), and set-up costs are problematic.
**Unspecialized equipment that is fully used up (amortized) does not matter, nor does movable equipment
**There may be ways to design mechanisms for dealing with this, but frictionless transfer is required (and unlikely)
*Equipment that represents a relational specific investment

==Ed's Notes==

This literature could be applied to the traditional franchising literature - rather than a social planner or government considering these contracts, a firm could be considering them. Franchising (in the business sense) is them a form of regulation (in the policy sense), and contracting (in the business sense) is a form of francising (in the policy sense).

Whinston (2003) - On The Transaction Costs Determinants Of Vertical Integration

2020-09-29T17:24:03Z

Maintenance script:

{{Article
|Has page=Whinston (2003) - On The Transaction Costs Determinants Of Vertical Integration
|Has title=On The Transaction Costs Determinants Of Vertical Integration
|Has author=Whinston
|Has year=2003
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
Whinston (2003), "On the Transaction Costs Determinants of Vertical Integration", The Journal of Law, Economics and Organization, Vol. 19, No. 1 [http://www.edegan.com/pdfs/Whinston%20(2003)%20-%20On%20the%20Transaction%20Costs%20Determinants%20of%20Vertical%20Integration.pdf pdf]

==Abstract==
No abstract available at this time.

Williamson (1971) - The Vertical Integration Of Production

2020-09-29T17:24:03Z

Maintenance script:

{{Article
|Has page=Williamson (1971) - The Vertical Integration Of Production
|Has title=The Vertical Integration Of Production
|Has author=Williamson
|Has year=1971
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==
Williamson, Oliver E. (1971), "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, 61:112-23. [http://www.edegan.com/pdfs/Williamson%20(1971)%20-%20The%20Vertical%20Integration%20of%20Production.pdf pdf]

@article{williamson1971vertical,
title={The vertical integration of production: market failure considerations},
author={Williamson, O.E.},
journal={The American Economic Review},
volume={61},
number={2},
pages={112--123},
year={1971},
publisher={JSTOR}
}

==Abstract==
The study of vertical integration has presented difficulties at both theoretical and policy levels of analysis. That vertical integration has never enjoyed a secure place in value theory is attributable to the fact that, under conventional assumptions, it is an anomaly: if the costs of operating competitive markets are zero, "as is usually assumed in our theoretical analysis" (Arrow, 1969, p. 48), why integrate?

==Background==

The context of the paper is as follows:
*Firms have a coordinating advantage over markets
**Markets have "Transactional Failure"
*'''Transaction costs''' are important '''only where adaptation is needed'''.
**Adaptation is making a '''relational specific investment'''
*The focus on the paper is on '''incentives''' (opportunistic behaviour is following one's incentives, rationally) and '''control''' in the firm vs in the market.
*The paper considers only when firms are better, not what makes them worse
*The properties of governance are: '''incentives''', '''control''', and "inherent structural advantages" (though it isn't clear what the last term means).
**Control is '''fiat''', which is more efficient than haggling or litigation.
*A Firm <math>\equiv</math> "Long term sequential contracts with a fixed arbitrator"

==The Theory==

===The Methodology===

The methodology is to apply the '''Discriminating Alignment Hypothesis'''.

That is to find what causes problems and then argue how a specific organizational form solves (i.e. has structural advantages).

===Ingredient I===

Suppose there are a few suppliers for a component that fits into a larger product

'''Argument I''': Bilateral monopoly is not itself a big problem (without double marginalization):
*There will be bargaining over the surplus - and haggling is costly, which reduces resources (c.f. [http://en.wikipedia.org/wiki/Coase%27s_theorem Coase's theorem] and Tullock - Rent dissapation in a contest), at least in the presence of transaction costs.
*If there is haggling then vertical integration (VI) solves the problem
*So do spot contracts (either over the contract or other the integration)
**Therefore VI is as good as a contract (and is a contract!).

===Ingredient II===

Suppose there are incomplete contracts, but that otherwise we are in a world of Arrow-Debreu securities.

There are three potential solutions:
#A long term contract
#A sequence of short term contracts
#Vertical Integration

For long term contracts to work they need to be Arrow-Debreu contigent contracts.
*Writing a contract for every state of the world is costly - assume prohibitively, as otherwise there is no need for the contract to be incomplete

There must be '''adaption''' on the equilibrium path, which implies the possibility of strategic (opportunistic) behaviour.

Can short term contracts solve this problem?
*Not if there are '''relational specific investments''' (c.f. Klien, Crawford and Alchian, or Grossman and Hart)
*Not is there are '''ex-post relational specific advantages''' (c.f. Masten and Synder)

The main tradeoff is between: '''Optimal investment''' and '''Optimal sequential adaptation'''. These are at odds. VI solves this tradeoff!

Weingast, B. (1979), A Rational Choice Perspective on Congressional Norms

2020-09-29T17:24:02Z

Maintenance script:

{{Article
|Has page=Weingast, B. (1979), A Rational Choice Perspective on Congressional Norms
|Has title=A Rational Choice Perspective on Congressional Norms
|Has author=Weingast, B.
|Has year=1979
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
Download the paper as a [http://www.edegan.com/pdfs/Weingast%20(1979)%20-%20A%20Rational%20Choice%20Perspective%20on%20Congressional%20Norms.pdf pdf]

==Paper's Motivation==

The author notes that lots of formal models of legislatures suggest that "minimum winning coalitions" should prevail. Ie, the winning coalition will have a size of 50% of the total legislators, plus one. This should happen because the majority should attempt to divide the benefits of a project to as few members as possible while still having enough votes to pass a majority vote on the project.

This never seems to appear in real life: Winning coalitions are often much larger than 50%. The paper's goal is to develop a formal model to explain these larger margins. The author achieves this by modeling the "informal rules" seen in Congress within the formal game theoretic setup. The author shows how legislative rules that lead to large majorities are better for legislators than rules that lead to smaller majorities -- thus suggesting how such rules could come about endogenously.

==Model Setup==

The paper studies two games: The "Distributive Legislative Game" (DLG) and the "Universalism Legislative Game" (ULG) and compares the expected utility of the two games to the legislators. In both games, a legislator <math>i</math> proposes a project or program with total benefits <math>b</math> and costs <math>c<b</math>. The benefits to the <math>i</math>th project accrue entirely to district <math>i</math>, but the costs are distributed equally to all districts. No side payments possible in either game. Both games are majority rule.

Given this setup: A legislator who proposes his project alone will be rejected by everyone else. Therefore some coalition building and logrolling is necessary: Rather than voting on single projects, legislators will vote on collections of them. If a legislator is part of the winning coalition, she gets the benefits of her own district's projects and pays an equally distributed slice of the costs. If a legislator is NOT part of the winning coalition, she still pays an equally distributed slice of the costs but gets no benefits.

The ULG game requires unanimous consent, and the DLG game is majority rule. In Proposition 1, the authors prove that in a DLG -- the smallest possible majority will prevail (the "minimum winning coalition", or "MWC"). Because the model does not feature committees, seniority, parties or other sources of varying power between legislators -- the model assumes that all possible MWCs are equally likely. As such, each legislator has a <math>a=(N+1)/2N</math> probability of being part of the prevailing MWC (where N is the number of legislators, assumed to be odd. Proof on page 251). In the ULG -- each member has a probability of being part of the winning coalition equal to 1.

This brings us to Proposition 2, which shows the following: If risk-neutral legislators are trying to maximize the payoff to their constituents, they will prefer the ULG to the DLG.

<blockquote>Proof: I'll first study the expected benefits of being part of the winning coalition. The benefit of being a part of the winning coalition is <math>b</math>, and the benefit of not being part of the coalition is zero. The costs are the same no matter what: Equal to <math>1/N</math>th of the costs of <math>(N+1)/2</math> projects. This multiplies out to be a cost of <math>c(N+1)/2N=ac</math>. As such, the expected return to a district is equal to <math>a(b-ac)+(1-a)(-ac)=a(b-c)</math> </blockquote>

<blockquote>Turning to the ULG: The net benefit is equal to <math>b-c</math> no matter what. We can easily show that <math>(b-c)>a(b-c)</math> since <math>1<a</math>. Therefore the ULG maximizes expected benefits to constituency. [Editorial comment from Bo: This would probably be even moreso if the legislator was risk averse rather than risk-neutral.]</blockquote>

From here the author studies the relaxation of the <math>b>c</math> assumption.
* First he shows the conditions under which legislators will propose their project --assuming that all other legislators are proposing theirs.
* Then the author discusses the notion that <math>b/c</math> is decreasing over time -- so that the "worthwhile" projects are used early in the game, and the bad ones will continue later. The author notes that at some point, pork is no longer rational for the legislators and voters. However, this happens sooner in the majority rule than the universal rule.

Weingast Marshall (1988) - The Industrial Organization Of Congress

2020-09-29T17:24:02Z

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{{Article
|Has page=Weingast Marshall (1988) - The Industrial Organization Of Congress
|Has title=The Industrial Organization Of Congress
|Has author=Weingast Marshall
|Has year=1988
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
Weingast and Marshall (1988), "The Industrial Organization of Congress",Journal of Political Economy, vol. 96, pp. 132-163. [http://www.edegan.com/pdfs/Weingast%20Marshall%20(1988)%20-%20The%20Industrial%20Organization%20of%20Congress.pdf pdf]

==Abstract==
No abstract available at this time.

VonGraevenitz Wagner Harhoff (2011) - How To Measure Patent Thickets A Novel Approach

2020-09-29T17:24:01Z

Maintenance script:

{{Article
|Has page=VonGraevenitz Wagner Harhoff (2011) - How To Measure Patent Thickets A Novel Approach
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|Has author=VonGraevenitz Wagner Harhoff
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|In journal=
|In volume=
|In number=
|Has pages=
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Von Graevenitz, G., Wagner, S. and Harhoff, D. (2011), "How to measure patent thickets -; A novel approach", Economics Letters, Vol.111, No.1, pp.6--9

@article{von2011measure,
title={How to measure patent thickets -- A novel approach},
author={Von Graevenitz, G. and Wagner, S. and Harhoff, D.},
journal={Economics Letters},
volume={111},
number={1},
pages={6--9},
year={2011},
abstract={This paper provides a direct measure of the density of patent thickets based on patent citations. We discuss the algorithm that generates the measure and present descriptive results validating it. Moreover, we identify technology areas particularly affected by patent thickets.},
discipline={Econ},
research_type={Measures},
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==File(s)==

*[[Media:VonGraevenitz Wagner Harhoff (2011) - How To Measure Patent Thickets A Novel Approach.pdf|Download the PDF]]
*[[:Image:VonGraevenitz Wagner Harhoff (2011) - How To Measure Patent Thickets A Novel Approach.pdf|Repository record]]

==Abstract==

This paper provides a direct measure of the density of patent thickets based on patent citations. We discuss the algorithm that generates the measure and present descriptive results validating it. Moreover, we identify technology areas particularly affected by patent thickets.

Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation

2020-09-29T17:24:01Z

Maintenance script:

{{Article
|Has page=Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation
|Has title=Effects Of Research Tool Patents And Licensing On Biomedical Innovation
|Has author=Walsh Arora Cohen
|Has year=2003
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Walsh, John P, Arora, Ashish and Cohen, Wesley M (2003), "Effects of research tool patents and licensing on biomedical innovation", Patents in the Knowledge-based Economy, Vol.285, pp.286

@article{walsh2003effects,
title={Effects of research tool patents and licensing on biomedical innovation},
author={Walsh, John P and Arora, Ashish and Cohen, Wesley M},
journal={Patents in the Knowledge-based Economy},
volume={285},
pages={286},
year={2003},
abstract={Over the last two decades changes in technology and policy have altered the landscape of drug discovery. These changes have led to concerns that the patent system may be creating difficulties for those trying to do research in biomedical fields. Using interviews and archival data, we examine the changes in patenting in recent years and how these have affected innovation in pharmaceuticals and related biotech industries. We find that there has in fact been an increase in patents on the inputs to drug discovery (?research tools?). However, we find that drug discovery has not been substantially impeded by these changes. We also find little evidence that university research has been impeded by concerns about patents on research tools. Restrictions on the use of patented genetic diagnostics, where we see some evidence of patents interfering with university research, are an important exception. There is, also, some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs. We do not observe as much breakdown or even restricted access to research tools as one might expect because firms and universities have been able to develop ?working solutions? that allow their research to proceed. These working solutions combine taking licenses, inventing around patents, infringement (often informally invoking a research exemption), developing and using public tools, and challenging patents in court. In addition, changes in the institutional environment, particularly new U.S. Patent and Trademark Office (USPTO) guidelines, active intervention by the National Institutes of Health (NIH), and some shift in the courts? views toward research tool patents, appear to have further reduced the threat of breakdown and access restrictions although the environment remains uncertain. We conclude with a discussion of the potential social welfare effects of these changes in the industry and the adoption of these working solutions for dealing with a complex patent landscape. There are social costs associated with these changes, but there are also important benefits. Although we cannot rule out the possibility of new problems in the future, our results highlight some of the mechanisms that exist for overcoming these difficulties.},
discipline={Law},
research_type={Discussion},
industry={Academia, Biomedical},
thicket_stance={},
thicket_stance_extract={},
thicket_def={},
thicket_def_extract={},
tags={Research Tools, Licensing},
filename={Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation.pdf}
}

==File(s)==

*[[Media:Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation.pdf|Download the PDF]]
*[[:Image:Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation.pdf|Repository record]]

==Abstract==

Over the last two decades changes in technology and policy have altered the landscape of drug discovery. These changes have led to concerns that the patent system may be creating difficulties for those trying to do research in biomedical fields. Using interviews and archival data, we examine the changes in patenting in recent years and how these have affected innovation in pharmaceuticals and related biotech industries. We find that there has in fact been an increase in patents on the inputs to drug discovery (?research tools?). However, we find that drug discovery has not been substantially impeded by these changes. We also find little evidence that university research has been impeded by concerns about patents on research tools. Restrictions on the use of patented genetic diagnostics, where we see some evidence of patents interfering with university research, are an important exception. There is, also, some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs. We do not observe as much breakdown or even restricted access to research tools as one might expect because firms and universities have been able to develop 'working solutions' that allow their research to proceed. These working solutions combine taking licenses, inventing around patents, infringement (often informally invoking a research exemption), developing and using public tools, and challenging patents in court. In addition, changes in the institutional environment, particularly new U.S. Patent and Trademark Office (USPTO) guidelines, active intervention by the National Institutes of Health (NIH), and some shift in the courts? views toward research tool patents, appear to have further reduced the threat of breakdown and access restrictions although the environment remains uncertain. We conclude with a discussion of the potential social welfare effects of these changes in the industry and the adoption of these working solutions for dealing with a complex patent landscape. There are social costs associated with these changes, but there are also important benefits. Although we cannot rule out the possibility of new problems in the future, our results highlight some of the mechanisms that exist for overcoming these difficulties.

==Review==

The paper concerns: "70 interviews with personnel at biotechnology and pharmaceutical firms and universities in considering the effects of research tool patents on industrial or academic biomedical research. This review is not exhaustive.

===Definition of Patent Thicket===

Definition is from Heller and Eisenberg (1998), and is essentially:
*Diversely-held complementary inputs

:''"Heller and Eisenberg (1998) argue that biomedical innovation has become susceptible to what they call a “tragedy of the anticommons,” which can emerge when there are numerous property right claims to separate building blocks for some product or line of research. When these property rights are held by numerous claimants (especially if they are from different kinds of institutions), the negotiations necessary to their combination may fail, quashing the pursuit of otherwise promising lines of research or product development."''

:''"The essential precondition for an anticommons is the existence of multiple patents covering different components of some product, its method of manufacture, or inputs into the process through which it is discovered."''

However, they also include the single firm/single patent definition of a:
*Broad blocking patent underlying cummulative innovation

:''"Merges and Nelson (1990) and Scotchmer (1991) have argued, however, that the self-interested use of even just one patent—although lacking the encumbrances of multiple claimants characterizing an “anticommons”—may also impede innovation where a technology is cumulative... A key concern regarding the impact of patents in such cumulative technologies is that “unless licensed easily and widely,” patents—especially broad patents—on early, foundational discoveries may limit the use of these discoveries in subsequent discovery and consequently"''

For conceptual foundations see Heller and Eisenberg (1998). Three points:
*Transaction/licensing costs might be greater than the ultimate value of the deal
*Heterogeniety in goals/practices/etc. among licensors can increase the difficulty and cost of reaching an agreement
*Uncertainty over the value of rights can spawn asymmetric valuations and contribute to bargaining breakdowns. Uncertainty is heightened because "courts have yet to interpret the validity and scope of particular patent claims."

The paper notes that there ia an adverse social welfare consequence if the patent-holder is not at least as able as downstream users to fully exploit the potential contribution of the input or subsequent innovation.

===Single firm/patent examples===

The paper draws attention to historical examples of patents that retarded innovation:
*De Forest (Marconi)'s Radio patent (solved by the creation of RCA)
*The Wright's brothers (with multi-firm patent improvements)

===Statements from respondents===

:''"We asked about 10 of our industry respondents to tell us how many pieces of IP had to be in-licensed for a typical project. They said that there may be a large number of patents to consider initially—sometimes in the hundreds, and that this number is surely larger than in the past. However, respondents then went on to say that in practice there may be, in a complicated case, about 6-12 that they have to seriously address, but that more typically the number was zero."''

:''"Thus we observe many patents (especially on research tools) owned by different parties with different agendas. In short, the patent landscape has indeed become more complex— although not as complex as suggested by some."''

Defensive patenting:
:''"An executive with a biotechnology firm... “We have a defensive patent program in genomics. It is the same as in the Japanese electronics industry. There they patent every nut and screw on a copier, camera, and build a huge portfolio, so Sony never sues Panasonic and Panasonic never sues Sony. There is a little of that going on in genomics. That way, if an IP issue ever arose, we have some cards in our hand.”"''

Broad/Reach-through patents:
:''"Another way in which the absence of a clear written description may allow upstream patents to directly affect subsequent research is via “reach-through” patent claims... Here, the patent claims the target and any compound that acts on the target to produce the desired effect, without describing what those compounds are. A commonly cited case is the University of Rochester’s patent on the COX-2 enzyme, which includes claims on drugs that inhibit the enzyme.14 This claim is the basis of the lawsuit against Searle for patent infringement... Although the USPTO has permitted broad claims to issue, there remains the question of how the courts will evaluate those claims."''

===Results===

Cessation of project due to failure to secure IP rights not found:

:''"Perhaps the most extreme expression of an anticommons tragedy is the existence of multiple rights holders spawning a breakdown in negotiations over rights that lead to an R&D project’s cessation. We find almost no evidence of such breakdowns... Of the 55 respondents who addressed this issue (representing all three sectors), 54 could not point to a specific project stopped because of difficulties in getting agreement from multiple IP owners (the anticommons problem)."''

:''"Although the number of ongoing R&D projects stopped because of an anticommons problem is small, it is possible that firms avoid stacking and other difficulties in accessing IP rights by simply not undertaking a project to begin with. As a practical matter, it is difficult to measure the extent to which projects were not started or redirected because of patent-related concerns... Although we have no systematic data on projects never pursued, our findings on the absence of breakdowns is consistent with the notion that there are relatively few cases where otherwise commercially promising projects are not undertaken because of IP on research tools."''

Royalty stacking is not prohibitive:

:''"Most of our respondents reported that royalty stacking did not represent a significant or pervasive threat to ongoing R&D projects... Royalty stacking does not represent a significant threat to ongoing R&D projects for several reasons. First, and principally, the total of fees paid, as discussed below, typically does not push projects into a loss. Second, in the minority of cases in which the stacking of fees threatens a loss, compromises tend to be struck, often in the form of royalty offsets across the various IP holders... Finally, in the few cases in which such a problem might emerge, it also tends to be anticipated. One firm executive we interviewed said they had a corporate-level committee that reviewed all such requests to make sure such problems do not occur."''

Licensing fees are reasonable:

Overall, our respondents noted that, although these costs were higher than before the surge in research tool patents, they believed them to be within reason largely because the productivity gains conferred by the licensed research tools were thought to be worth the price.

UKIPO (2011) - Patent Thickets An Overview

2020-09-29T17:24:00Z

Maintenance script:

{{Article
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|Has title=Patent Thickets An Overview
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|Has year=2011
|In journal=
|In volume=
|In number=
|Has pages=
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Team, Intellectual Property Office Patent Informatics (2011), "Patent Thickets: An overview", UK Intellectual Property Office

@article{ukipo2011patentthickets,
title={Patent Thickets: An overview},
author={Intellectual Property Office Patent Informatics Team},
journal={UK Intellectual Property Office},
year={2011},
abstract={},
discipline={Policy Report},
research_type={Discussion},
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tags={},
filename={UKIPO (2011) - Patent Thickets An Overview.pdf}
}

==File(s)==

*[[Media:UKIPO (2011) - Patent Thickets An Overview.pdf|Download the PDF]]
*[[:Image:UKIPO (2011) - Patent Thickets An Overview.pdf|Repository record]]

==Executive Summary==

The Hargreaves Review of IP and Growth concluded that patent thickets can impact negatively on business and innovation. In response the Government committed to investigating the scale and prevalence of patent thickets, including whether they do in fact present a particular problem to small to medium enterprises (SMEs) seeking to enter technology sectors. This study is the first part of this work.

Thus the current study was initiated with three key aims in mind:
1. to begin to take the debate around patent thickets away from anecdotal and micro-study approach, toward a more generalised methodology by providing a general taxonomy for discussing patent thickets;
2. to generate an automated methodology for detecting patent thickets in published patent data; and
3. to assess whether or not patent thickets present a barrier to entry for companies, particularly SMEs, in the UK.

The phrase “patent thicket” is a descriptive term which highlights issues that new entrants to a market may face when attempting to innovate within, or enter into, a technology space having existing intellectual property rights. The most generally used definition of a thicket is that coined by Shapiro:
“a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology”

Equal weighting is given to fragmented technological areas (areas where there are large numbers of small patent holdings), or areas where there are small numbers of large players with large patent holdings, each of which creates a thicket that any entrants into the area will have to negotiate in order to be able to operate.
There is no clear consensus on terms used to describe patent thickets and the entities involved with them. If these terms were applied consistently, further debate on any issues could be conducted on a level playing field. Any change in policy associated with patent thickets should be carefully considered for its potential impact across different technology landscapes.
The second aim is achieved by using the various micro studies of thicket existence which focus on patent pools, standards, blocking behaviour and products. Creating a set of algorithms and indicators will allow us to identify well-known thickets and identify where other patent clusters have similar characteristics.

Several indicators were calculated from the data, and the main patent density measures were the most useful in suggesting that thickets were present. However, it was interesting to note that some indicators potentially give more useful insight into the type of thicket present. Further work is required to expand on the indicators and their use in order to develop the toolkit for automatic detection, and perhaps categorising, of patent thickets in a generic area of technology.

Visual interrogation of patent landscapes offers an alternative method of assessing technology areas for patent thickets, as demonstrated by the analyses of the safety razor dataset. However, the complex terminology associated with some areas raises challenges in using this technique.

Following the creation of indicators, it was noted that patent applications themselves (as compared with granted patents) may also form a barrier to entry. This issue is compounded by the fact that in some jurisdictions (not the ones in the current study) the applicant can defer the examination of a patent for several years. In order to analyse whether this issue presents a problem, further work is needed to track cohorts of patents from application through to grant for certain technology areas and in certain jurisdictions.

It may be useful and perhaps more informative to analyse thickets by looking at the products which are associated with particular patents. Additional work would need to be carried out in order to start understanding how patents and products are linked, before datasets could be created.

To assess whether or not patent thickets present a barrier to entry for companies, particularly in the UK, a number of areas in distinct types of technology were selected to form the basis of the study. Some of the technology areas were chosen because they are known to contain thickets, and the areas also include traditionally relatively slow moving areas, such as safety razor blades, through to faster moving wireless networking systems. Much of the existing literature on patent thickets has its source in the United States and, as such, it is important to include US data together with European (EP) and UK data.

In order to explore some of the issues surrounding thickets in more detail, a case study based on safety razors was chosen. This is not one of the traditional high-tech areas presently associated with thickets, being more fundamentally mechanical in nature. However, there is a well known high patent density caused by the market dominance of the main players.

The data show that the companies involved are mainly large multinational companies, thus adding to the notion that there may be a barrier to entry. However, there are smaller companies present and as such there is no conclusive evidence either way, at this stage, to suggest that there are barriers to entry. The presence of an SME in a densely populated technology space is encouraging, but the key test is whether these companies can grow and develop within such spaces, and is an area which needs to be addressed in the next round of analysis.

This report has raised more questions than provided answers. Clarity and language associated with patents and claims, in particular, could be addressed. This was noticeable when attempting to visually map out some of the more complex high technology areas, such as wireless networking.

It was suggested in the Hargreaves Review of IP and Growth that one solution to patent thickets is to review the level of renewal fees charged. Work is needed to explore the issues surrounding the increasing of renewal fees, and particularly the impact any change would have on those parties who use the patent system in a non-thicket manner.

Additional research in considering the impact of the secondary market in patents should be contemplated. It seems that it would be interesting and relevant to study data relating to licensing and patent ownership for US, GB and EP data. However, this is not available at this time. A study in how this secondary market is evolving would be of value.

==Review==

===Definition of patent thicket===

:''"The phrase ‘patent thicket’ is a descriptive term which highlights issues that new entrants to a market may face when attempting to innovate within, or enter into, a technology space having existing intellectual property rights. The most generally used definition of a thicket is that coined by Shapiro: ‘a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology’."''

===Policy Discussion===

Policy topic considered:

In response to a study that concluded that patent thickets can impact negatively on business and innovation, the UK Government opened an investigation into the scale and prevalence of patent thickets. This paper is the first of a series and considers:
*Moving the patent thicket debate from anecdotal discussions by developing a general taxonomy for discussion;
*Generating a methodology for detecting patent thickets in published patent data;
*Assessing extent of patent thickets as a potential barrier for companies (particularly SMEs) in the UK

While not the focus of the article, the authors note that:
:''"The differences between the US and European patent systems may serve to overall allow [The Patent Assertion Entity] PAEs to operate in the US system because of the following points: - The presumption of validity of patents by US judges and juries - The allowance of business methods and ‘software patents’ - The potential for the existence of so called ‘submarine patents’, as not all patents are published at the 18 month stage - The way in which costs are divided by the courts – both parties pay their own costs - The high costs of litigation - Where ‘wilful (sic) infringement’ is decided, high level of damages can be afforded - The payment system for lawyers can be considered to encourage lawsuits - The existence of patents of unclear scope”''

Data considered:

The report relies upon an IPO database collected from publically available data for UK, US and EU to assess the existence of patent thickets of high patent densities.
*The data includes datasets limited by 20 years for granted patents, and 5 years for pending patent applications within each of the technological areas covered.
*Technology areas covered by the data include: Nanobiotechnology, Telemedicine, Dendritic polymers, Graphene, Photorefractive keratectomy, Wireless networking (handoff arrangement), Safety razors, and Fuel Cells.

Results:

The report provides “an initial insight” into whether or not patent thickets are found in a specific technology area.
*The results show that technology areas containing thickets tend to be dominated by larger applicants, though some technologies include thickets caused by multiple applicants having smaller sized portfolios.
*The study’s indicators also appear to show that there is a possibility of different thicket forms occurring where there are different types of technology linked to the maturity of that technology space.

===Social Welfare Implications===

The potential barriers to entry, in particular for SMEs are of special concern to the UK government, thus the generation of this study.

===Policy Advocated in Paper===

While not conclusive in this report, the authors propose several areas for further study including:
*Develop an economic significance test of whether SMEs can grow within such technology spaces and needs further study;
*Determine whether pending patent applications are a barrier to entry.
**Because timing of patent applications creates uncertainty, further work is needed to track cohorts of patents from application to grant for technology areas and jurisdictions to determine the impact.
**This effort is inhibited by dataset issues.
*Clarify language in patents:
**New entrants to technology might find it difficult to understand the scope of patents being sought because of the language of patent claims.
**Time and energy spent on understanding a technology area in terms of acknowledged activity coupled with a consistent approach towards obviousness could potentially reduce numbers of patents granted and increase overall densities.
*A potential method for preventing patent thickets would be to charge patent holders a renewal fee, though further research is needed.
*Additional data should be collected:
**The authors suggest studying data relating to licensing and patent ownership in the US, Great Britain, and European patents and the secondary market would be useful, though they note that this data is currently unavailable.
**Further work is needed to begin to understand how patents and products are linked before datasets could be created.

VonGraevenitz (2012) - Incidence And Growth Of Patent Thickets

2020-09-29T17:24:00Z

Maintenance script:

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|Has author=VonGraevenitz
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|In volume=
|In number=
|Has pages=
|Has publisher=
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*von Graevenitz, G., Wagner, S. and Harhoff, D. (2012), "Incidence and Growth of Patent Thickets-The Impact of Technological Opportunities and Complexity", Journal of Industrial Economics

@article{von2012incidence,
title={Incidence and Growth of Patent Thickets-The Impact of Technological Opportunities and Complexity},
author={von Graevenitz, G. and Wagner, S. and Harhoff, D.},
journal={Journal of Industrial Economics},
year={2012},
abstract={We investigate incidence and evolution of patent thickets. Our empirical analysis is based on a theoretical model of patenting in complex and discrete technologies. The model captures how competition for patent portfolios and complementarity of patents affect patenting incentives. We show that lower technological opportunities increase patenting incentives in complex technologies while they decrease incentives in discrete technologies. Also, more competitors increase patenting incentives in complex technologies and reduce them in discrete technologies. To test these predictions a new measure of the density of patent thickets is introduced. European patent citations are used to construct measures of fragmentation and technological opportunity. Our empirical analysis is based on a panel capturing patenting behavior of 2074 firms in 30 technology areas over 15 years. GMM estimation results confirm the predictions of our theoretical model. The results show that patent thickets exist in 9 out of 30 technology areas. We find that decreased technological opportunities are a surprisingly strong driver of patent thicket growth.},
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filename={vonGraevenitz (2012) - Incidence And Growth Of Patent Thickets.pdf}
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==File(s)==

*[[Media:vonGraevenitz (2012) - Incidence And Growth Of Patent Thickets.pdf|Download the PDF]]
*[[:Image:vonGraevenitz (2012) - Incidence And Growth Of Patent Thickets.pdf|Repository record]]

==Abstract==

We investigate incidence and evolution of patent thickets. Our empirical analysis is based on a theoretical model of patenting in complex and discrete technologies. The model captures how competition for patent portfolios and complementarity of patents affect patenting incentives. We show that lower technological opportunities increase patenting incentives in complex technologies while they decrease incentives in discrete technologies. Also, more competitors increase patenting incentives in complex technologies and reduce them in discrete technologies. To test these predictions a new measure of the density of patent thickets is introduced. European patent citations are used to construct measures of fragmentation and technological opportunity. Our empirical analysis is based on a panel capturing patenting behavior of 2074 firms in 30 technology areas over 15 years. GMM estimation results confirm the predictions of our theoretical model. The results show that patent thickets exist in 9 out of 30 technology areas. We find that decreased technological opportunities are a surprisingly strong driver of patent thicket growth.

==Review==

===Measures of Patent Thicket===

Patent thickets are measured with two variables:
*"Triples" to reflect patent thicket blocking/hold-up potential associated with complexity of technological inputs to a firm's products, measured by mutual references between patents of at least three firms in a technology area;
*Fragmentation of patents across firms cited as critical references (X and Y references that limit patentability of a patent) by a given firm's patents in a given technology area.

===Sample===

173,448 year/technology/firm observations on 2,074 firms with European patents in 30 technology areas from 1988-2002.
*European patents information from the European Patent Office's PATSTAT database provides citations data between 1987 and 2002;
*Firms for analysis restricted to those with at least 100 patent applications and at least 3 years of patent applications in a technology area after 1987.

===Results===

*Greater technological opportunities (more non-patent references) raises patenting significantly with coefficient of 1.553.
*Complexity of patents in a technology area ("triples") affects patenting differently in simple vs. complex technologies:
**Increasing technological opportunities reduce patenting in complex technology areas (the interaction of technological opportunity and Triples has a significantly negative coefficient of -.036);
**Increasing complexity ("triples) in simpler technology areas increases patenting, (the straight triples coefficient is significantly positive 0.005, and represents effect of complexity for simpler technologies since the above interation of technological opportunity and triples leaves simpler technologies as the reference group);
**Also, significant negative interactions between triples and lagged dependent variables for patenting indicates that persistence in patenting is absent for more complex technology areas:
:''"This shows that patentees area more responsive to their competitors' patenting behavior and to technological opportunity in complex technology areas than in discrete technology areas."''
*Fragmentation of the ownership of technology, which authors view as indicating greater competition, significantly reduces patenting efforts, -0.474.

===Social Welfare Consequences===
:''"We show theoretically that greater technological opportunity will raise patenting in discrete technologies but will lower it as technologies become increasingly complex [as captured by triples]. Additionally, we show that greater competition in R&D raises firms’ patenting levels in complex technologies. To test our model we derive a new measure of complexity of blocking relationships in patent thickets [triples]. This measure exploits information on critical references to capture mutual blocking between the patent portfolios of firms contained in European patent data. Using the measure we are able to confirm that blocking is a much more serious problem in technology areas previously identified as complex than in those previously identified as discrete."''

:''"Using data on patenting in Europe and these measures,...increased technological opportunity during the early 1990’s counteracted the effects of growing complexity and retarded the onset of the patenting explosion observable after 1994. The patent explosion coincides with the decrease in technological opportunities after 1994."''

===Dependent Variable and Model===
The dependent variable is the (log of the) number of patent filings by a firm in a given year in a given technology area.
*Models are estimated by GMM to account for "endogeneity" of lagged patent counts (where instruments are lagged values of potentially endogeneous variables).
*Explanatory variables are:
**"Triples" to reflect patent thicket hold up potential associated with complexity of technological inputs to a firm's products, measured by mutual references between patents of at least three firms in a technology area;
**Fragmentation of patents across firms cited as critical references (X and Y references that limit patentability of a patent) by a given firm's patents in a given technology area;
**Technological opportunity, measured by the average number of non-patent literature references (NPR) in the search report of patents in a technology area;
**Technological diversity of the firm, measured by the number of technology areas with at least one patent application in a given year;
**Firm size indicator, reflecing whether the firm is in the upper half of the distribution of the number of patents in a technology area;
**Indicators for technology areas and years;
**Lagged patent filings.

Ting (2009) - Organizational Capacity

2020-09-29T17:23:59Z

Maintenance script:

{{Article
|Has page=Ting (2009) - Organizational Capacity
|Has title=Organizational Capacity
|Has author=Ting
|Has year=2009
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==
Ting, Michael (2009), "Organizational Capacity", forthcoming JLEO, [http://www.columbia.edu/~mmt2033/organizational_capacity.pdf available on his website] [http://www.edegan.com/pdfs/Ting%20(2009)%20-%20Organizational%20Capacity.pdf pdf] (Class Slides: [http://www.edegan.com/repository/Ting%20(2009)%20-%20Organisational%20Capacity%20--%20Slides%20Set1.pdf Set1] [http://www.edegan.com/repository/Ting%20(2009)%20-%20Organisational%20Capacity%20--%20Slides%20Set2.pdf Set2], © Adrienne Hosek)

==Abstract==
Organizational capacity is critical to the effective implementation of policy. Consequently, strategic legislators and bureaucrats must take capacity into account in designing programs. This paper develops a theory of endogenous organizational capacity. Capacity is modeled as an investment that effects a policy's subsequent quality or implementation level. The agency has an advantage in providing capacity investments, and may therefore constrain the legislature's policy choices. A key variable is whether investments can be targeted" toward speciffc policies. If it cannot, then implementation levels decrease with the divergence in the players' ideal points, and policy-making authority may be delegated to encourage investment. If investment can be targeted, then implementation levels increase with the divergence of ideal points if the agency is suffciently professionalized, and no delegation occurs. In this case, the agency captures more benefits from its investment, and capacity is higher. The agency therefore prefers policy-specific technology.

==Summary==

This is a principal-agent model where the agent can make an investment in either general capacity or capacity specific to a policy. The principal can choose policy and 'use' the capacity of the agent. The model is one of complete and perfect information, and has two stages. The solution concept is SPNE and the game is solved by backwards induction. In later section the choice of type of specialization is endogenized, as is whether the principal would rather delegate the choice of policy to the agent.

Key concepts:
*Fungible: Two investment are fungible if they can be mutually substituted. This leads to the notion of general capacity that can be used to support any policy.

==The Model==

There is a:
*Principal - <math>P\,</math>
*An Agent - <math>A\,</math>

The variables are:
*Policy set by the principal is <math>x_t \in X\,</math>, for <math>t=\{1,2\}\,</math>.
*Agents have ideal points of <math>x^A\,</math> and <math>x^P\,</math>.
*Agents can invest in capacity <math>c\,</math>, at a cost <math>k(c)\,</math> which is continuous, increasing and convex
**<math>c\,</math> is assumed to be a vector, with <math>k(c)\,</math> having weakly-negative cross-partials to allow for cost efficiencies, but this doesn't seem crucial to the model.
*The implementation level, or production function, or capacity 'realization' function, <math>z(c,\cdots)\,</math> is weakly concave and increasing in <math>c\,</math>.
**<math>z\,</math> is assumed to be <math>z(x,y,c)\,</math>, though it is hard to see why this full generality matters.
**<math>z(c)\,</math> is assumed to have positive cross-partials to allow for complementary investments, though this doesn't seem crucial to the model.
*WLOG the model assumes that <math>x^P < x^A\,</math>

The utility functions are:

:<math>u_t^P = u^P(x_t,z; x^P)\,</math>

:<math>u_t^A = u^A(x_t,z; x^A) - k(c_t)\,</math>

The utility functions are assumed to meet:
*<math>\frac{\partial u^i}{\partial z} > 0\,</math> : Utility is increasing in the effect of capacity
*<math>\frac{\partial^2 u^i}{\partial z^2} \le 0\,</math> : Utility is concave in the effect of capacity
*<math>\frac{\partial^2 u^i}{\partial z \partial x} > 0 \mbox { for } x < x^i\,</math>: Utility is increasing in policy if policy is below the ideal point, holding capacity fixed
*<math>\frac{\partial^2 u^i}{\partial z \partial x} < 0 \mbox { for } x > x^i\,</math>: Utility is decreasing in policy if policy is above the ideal point, holding capacity fixed
*<math>\frac{\partial^2 u^A}{\partial z \partial x} = p \pi(x)\,</math>: where <math>p\,</math> represents the politization of the agent
**For low politization the agent is largely indifferent to the policy
**For high politization the agent wants lower implementation (<math>z\,</math>) if the policy is far from <math>x^A\,</math>
*There are various assumptions on the utility and cost functions to avoid corner solutions
*There exists some <math>z\,</math> such that <math>u^P(x^P,0) = u^P(x,z)\,</math>, that is the principal can be made indifferent to her ideal point by some capacity implementation.
*The total utility across both periods is additive with a discount factor: <math>u^i = u_1^i+\delta u_2^i\,</math>

The sequence of the game is:
#<math>A\,</math> chooses <math>c_1\,</math> and <math>y\,</math> (period 1a)
#<math>P\,</math> chooses <math>x_1\,</math> (period 1b)
#<math>P\,</math> chooses <math>x_2\,</math> and <math>c_2 \in \{c | 0 \le c \le c_1\}\,</math> (period 2)

An equilibrium is characterized by: <math>y^*, x_t^*, c_t^*, z_t^*\,</math>

There are two tie-break rules (it isn't clear when they are used):
#<math>P\,</math> breaks ties in favour of lower levels of investment
#<math>A\,</math> breaks ties by choosing the <math>x\,</math> closest to <math>x_A\,</math>

There are two basic versions of the game: Generalized (GC) and Specific Capacity (SC), then several variables are endogenized.

===Generalized Capacity (GC)===

This version of the model assumes that <math>z(c)\,</math> alone - that is <math>z(\cdot)\,</math> is independent of <math>x_t\,</math> and <math>y\,</math>. Thus the agent invests in generalized capacity that is not targeted at any specific purpose and the principal can use it in any fashion.

In both the GC and SC games:

:<math>c^o(x;x^A) = \mbox{arg} \max_c u^A(x, z(x,y,c); x^A) - k(c)\,</math>

In the GC game the unique SPNE is:
*<math>x_1^*=x_2^*=x^P\,</math>
*<math>c_1=c_2=c^0(x^p)\,</math>
*<math>c_1^*\,</math> and <math>z_1^*\,</math> are strictly decreasing in <math>x^A\,</math>

In the second period, the principal can choose any policy and so chooses <math>x^P\,</math> to maximise her utility. Further, utility is increasing in <math>z\,</math> and <math>z\,</math> is increasing in <math>c\,</math>, so <math>P\,</math> also wants to maximize <math>c_2\,</math> and does this by setting it to <math>c_1\,</math>.

In the first period, <math>P\,</math>'s best response to any <math>c\,</math> is <math>x^P\,</math>. <math>A\,</math> then maximizes utility by choosing <math>c_1\,</math> subject to this. However, as <math>z\,</math> is independent of <math>x\,</math> (and <math>y\,</math>), and as <math>A\,</math>'s utility is concave in <math>c\,</math>, but costs are convex, <math>A\,</math> chooses the interior maximum irrespective of <math>P\,</math>'s choice to maximize <math>z\,</math> and hence <math>u\,</math> (subject to the constraint that <math>x=x^p\,</math>). Any <math>y\,</math> can be choosen as it will have no effect.

===Specialized Capacity (SC)===

In this version of the model we assume that:

:<math>
z(x_t,y,c_t) =
\begin{cases}
z(c_t) & \mbox{ if } x_t = y \\
0 & \mbox { otherwise}
\end{cases}
\,</math>

That is if the principal enacts policy <math>x_2 = y\,</math>, then the production function kicks in and the benefits to specialization are realized. Otherwise, there are no benefits to the agent's investment in capacity.

Solving backwards we note that <math>P\,</math> can implement one of two policies:
*if <math>x_2 \ne y\,</math>, then <math>x_2 = x^P\,</math> is optimal, and <math>c_2=0\,</math> results
*otherwise <math>y\,</math> is optimal and <math>c_2 = c_1\,</math> is optimal

Supposing that <math>x_2 = x^P\,</math> is choosen, then <math>c_2 = 0\,</math> and <math>z=0\,</math> as <math>z(x_2,y,0)=0\,</math>. Otherwise if <math>x_2 = y\,</math> then <math>P\,</math> wants the full benefit of specialization and implements <math>c_2=c_1\,</math> as this maximises her utility.

The choice as to whether <math>x_2=y\,</math> is therefore:

:<math>u^P(x^P,0) \le u^P(y,z(c_1))\,</math>

Define <math>\gamma(\cdot)\,</math> as the level of realized production needed to make <math>P\,</math> indifferent, as a function of a policy that <math>A\,</math> will choose. Therefore <math>\gamma(y)\,</math> makes the choice above hold with equality.

<math>A\,</math> has two variables to maximize over: the choice of policy <math>y\,</math> and the level of investment in capacity <math>c\,</math>. The second choice is constrained to be either the amount that maximizes the realized production <math>z(c^0(y;x^A))\,</math> or the amount that achieves <math>\gamma(y)\,</math>, which ever is lowest. The realized production is:

:<math>z_t^*=max\{\gamma(y), z(c^0(y,x^A))\} \mbox{ for some } y\,</math>

<math>A\,</math> doesn't want policy to move beyond <math>x_A\,</math>. In addition, <math>A\,</math> prefers policies closer to <math>x^A\,</math> than <math>x^P\,</math> and can prevent <math>P\,</math> from choosing <math>x^P\,</math> by investing in some <math>y\,</math> closer to <math>x^A\,</math>. Therefore, the equilibrium is:

:<math>x_1^* = x_2^* = y^* \mbox{ and } y^* \in \left ( x^P, x^A \right]\,</math>

A further refinement is possible. Suppose that there is some <math>x_c\,</math> that makes <math>P\,</math> exactly indifferent between choosing it (and it's investment outcome), and <math>x^A\,</math> and the optimal investment outcome that <math>A\,</math> would put into it <math>z(c^0(x^A))\,</math>:

:<math>\gamma(x_c) = z(c^0(x^A))\,</math>

This gives two cases for <math>A\,</math>:
*<math>x^A \le x_c\,</math>: then <math>z(c^0(x^A)) \ge \gamma(x_A)\,</math> and <math>A\,</math> can make his most preferred capacity investment in his ideal point.
*<math>x^A > x_c\,</math>: then <math>z(c^0(x^A)) <\gamma(x_A)\,</math> and <math>A\,</math> can not invest optimally in <math>x^A\,</math>, and must over invest to achieve it.

However, there must be some cutoff policy <math>y_c\,</math> below which <math>A\,</math> is no longer able to achieve indifference:

:<math>y_c = \max \{y | \gamma(y) = z(c^0(y;x^A)) \}\,</math>

Thus the solution must be:

:<math>y^* \in [y_c,x^A]\,</math>

===Comparing GC and SC===

The following points are important:
*In the SC game <math>c_1^*=c_2^* \ge c^0(x^P)\,</math> and <math>z_1^*\,</math> is strictly higher than in the GC game.
*<math>P\,</math> compromises on policy in the SC game in order to get the benefits of the investment in capacity
*For 'friendly' agents (whose ideal point is close to that of the principal, specifically <math>x^A \in [x^P,x_c]\,</math>) equilibrium policy is at <math>x^A\,</math>
*For 'unfriendly' agents, policy is a compromise: <math>y \in \left (x^P, x^A \right]\,</math>
*Specialized investment commits <math>P\,</math> not to unravel <math>A\,</math>'s investment, and makes <math>A\,</math>'s target policy at least as attractive as the principal's ideal point.
*Renegotiation doesn't happen in either game - in the GC game powerless, in the SC game <math>A\,</math> makes renegotiation prohibitively costly.
*<math>A\,</math>'s advantage in the SC game comes (at least partly) from moving first
*If <math>A\,</math> is unfriendly he must over-invest in capacity to get a policy closer to his ideal point.
*The model can also be interpretted in terms of politization of the agents.
**If <math>p\,</math> is low and the agent's utility is independent of policy, then implementation <math>z\,</math> strictly increases as with the distance between the agent's and the principal's ideal points.
**If <math>p\,</math> is high then an agent might be willing to shift the target policy away from <math>x^A\,</math>, and in doing so reduce the implementation needed to satisfy the principal.

===Endogenous Specialization===

Whether specialization would occur if it were endogenously choosen depends on both who is choosing, and if the prinicpal is choosing where the agent's ideal point is:
*The utility of the agent is strictly higher in SC than in GC
*The utility of the principal is strictly lower in SC than in GC if <math>x^A \ge x_c\,</math>.

===Delegation===

In this section the paper first considers what would happen if the principal gave the agent the authority to choose policy in the first period, and then considers whether the principal would endogenously choose to do so.

In the GC game:
*The principal's choices in period 2 remain unchanged.
*However, the agent now chooses his ideal point as the policy in period 1.
*Recall that the total utility is the sum over the two periods with the second period discounted.
**Therefore the agent invests more heavily in capacity and realized implementation is higher, as compared with the standard GC model, particularly if the discount factor is low so the second period gets little weighting.
*<math>\hat{c}_1^* > c_1^*\,</math> and <math>\hat{z}_1^* > z_1^*\,</math>.

In the SC game:
*There are three possibilities for the agent:
**Choose <math>x_1 = y\,</math> and the game is as before
**Choose <math>x_1 = x^A\,</math> and pay twice for the capacity investment that is only realized once (in period 2), but get some benefits from <math>x^A\,</math> in the first period.
**Choose <math>x_1 = x^A\,</math> and invest nothing, taking just the benefits from the first period - this can be particularly ideal if <math>\delta\,</math> is very low.

In choosing delegation endogenously:
*The payoffs from the two GC games (to the principal) are compared. Under "many functional assumptions" <math>P\,</math> is less likely to delegate as the distance between <math>x^A\,</math> and <math>x^P\,</math> diverge.
*In the SC game, delegating authority to the agent is weakly dominated.

Tullock (1967) - The Welfare Costs Of Monopolies Tariffs And Theft

2020-09-29T17:23:59Z

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{{Article
|Has page=Tullock (1967) - The Welfare Costs Of Monopolies Tariffs And Theft
|Has title=The Welfare Costs Of Monopolies Tariffs And Theft
|Has author=Tullock
|Has year=1967
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
Tullock, G. (1967), The Welfare Costs of Monopolies, Tariffs, and Theft, Western Economic Journal 5, 224-32. [http://www.edegan.com/pdfs/Tullock%20(1967)%20-%20The%20Welfare%20Costs%20of%20Monopolies%20Tariffs%20and%20Theft.pdf pdf]

==Abstract==
In recent years a considerable number of studies have been published that purport to measure the welfare costs of monopolies and tariffs. The results have uniformly shown very small costs for practices that economists normally deplore. This led Mundell to comment in 1962 that "Unless there is a thorough theoretical re-examination of the validity of the tools upon which these studies are founded . . . someone will inevitably draw the conclusion that economics has ceased to be important." Judging from conversations with graduate students, a number of younger economists are in fact drawing the conclusion that tariffs and monopolies are not of much importance. This view is now beginning to appear in the literature. On the basis of these measurements Professor Harvey Leibenstein has argued "Microeconomic theory focuses on allocative efKciency to the exclusion of other types of efiiaencies that, in fact, are much more significant in many instances."

Thursby Fuller Thursby (2007) - Us Faculty Patenting Inside And Outside The University

2020-09-29T17:23:58Z

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{{Article
|Has page=Thursby Fuller Thursby (2007) - Us Faculty Patenting Inside And Outside The University
|Has title=Us Faculty Patenting Inside And Outside The University
|Has author=Thursby Fuller Thursby
|Has year=2007
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference==

*Thursby J., A. Fuller, & M. Thursby (2007), "US Faculty Patenting Inside and Outside the University", NBER working paper *13256. [http://www.edegan.com/pdfs/Thursby%20Fuller%20Thursby%20(2007)%20-%20US%20Faculty%20Patenting%20Inside%20and%20Outside%20the%20University.pdf pdf]

==Abstract==

This paper examines the empirical anomaly that in a sample of 5811 patents on which US faculty are listed as inventors, 26% of the patents are assigned solely to firms rather than to the faculty member's university as is dictated by US university employment policies or the Bayh Dole Act. In this paper we estimate a series of probability models of assignment as a function of patent characteristics, university policy, and inventor fields in order to examine the extent to which outside assignment is nefarious or comes from legitimate activities, such as consulting. Patents assigned to firms (whether established or start-ups with inventor as principal) are less basic than those assigned to universities suggesting these patents result from faculty consulting. A higher inventor share increases the likelihood of university assignment as compared with assignment to a firm in which the inventor is a principal but it has no effect on consulting with established firms versus assignment to the university. Faculty in the physical sciences and engineering are more likely to assign their patents to established firms than those in biological sciences.

==Summary of the paper==

'''This summary is short because this paper is weak.'''

Of patents created by university researchers, '''only 62% were assigned to universities'''. This is low, since '''employment contracts require assignment''' to the university when university resources are used. In addition '''Bayh-Dole''' allowed universities to retain ownership on IP created with federal funds - historically universities have insisted on ownership. This is in comparison to Europe where '''"professor privilege"''' allowed faculty ownership of their IP - see Geuna and Nesta (2006).

Interviews suggest that the bulk of assignments outside of the university come from '''consulting'''. The paper constructs a model to try to examine whether patenting outside of the university is nefarious or not. Since Bayh-Dole there has been a dramatic growth in TTOs. '''TTO's''' surveyed believe that '''less than half''' of all inventions are '''disclosed''' to them. But TTO's also '''shelve inventions''', and may then decide to '''turn over ownership''' to the faculty. Of course they might decide to do this anyway.

Faculty are more likely to '''disclose''' to their university if:
*They get a higher share of the '''royalties'''
*Non-disclosure may be '''accidental''' - the commercial potential may not be apparent to the innovator.
*They are willing to get involved in the '''university licensing process''' (which is complicated and may be difficult to work with)

For '''start-up companies''' that are originally based on faculty research it is common for faculty :
*to '''serve on the board'''
*to spend time in the company
*to '''legimately assign''' follow-on IP to the company

This leads to the following legitimate reasons for a patent not being assigned to the university:
*The TTO turned it over to the faculty (perhaps after shelving it)
*The research was conducted outside of the university (note that there is a limit on consulting days a faculty member can do)
**Either with an industry firm
**Or with a start-up (co-)founded by the faculty
*The university may allow it (like to the University of Wisconsin used to)

Or the faculty may have circumvented university policy!

University research tends to be more '''basic''' that the '''applied research''' conducted by industry. A measure of the 'appliedness' of the research is used to determine whether the patent assignment is legitimate. This measures is based on the '''incrementalness''' of the patent - in practice the number of '''backward citations''' made is used for the '''appliedness''' and the NBER measure of patent '''originality''' is used for '''basicness'''. These measures are so far from measuring (in my opinion) the basicness or appliedness of the patent that they are meaningless, and even if they did numerous problems are still inherent and not addressed.

===Other Notes===

Patents that are unassigned are the property of their inventor.

Note that the author's didn't mention that firms (i.e. non-universities) would likely be uninterested in the assignment of basic research, so even if assignment were random (and accidental), self-selection would give the same results.

Tian (2011) - The Causes And Consequences Of Venture Capital Stage Financing

2020-09-29T17:23:58Z

Maintenance script:

{{Article
|Has page=Tian (2011) - The Causes And Consequences Of Venture Capital Stage Financing
|Has title=The Causes And Consequences Of Venture Capital Stage Financing
|Has author=Tian
|Has year=2011
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Venture_Capital_Financing | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Tian, Xuan (2011), "The Causes and Consequences of Venture Capital Stage Financing", Journal of Financial Economics, Forthcoming. [http://www.edegan.com/pdfs/Tian%20(2011)%20-%20The%20Causes%20And%20Consequences%20Of%20Venture%20Capital%20Stage%20Financing.pdf pdf]

==Abstract==

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the physical location of an entrepreneurial firm and the geographic distance between the VC investor and the firm, I show that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round. However, VC investors’ propensity to stage is independent of whether the firm is located in a close-knit community. I also find that VC staging positively affects the entrepreneurial firm’s propensity to go public, operating performance in the initial public offering (IPO) year, and post-IPO survival rate, but only if the firm is located far away from the VC investor. However, the effect of VC staging on entrepreneurial firm’s performance is independent of whether it is located in a close-knit community. The findings are robust to a variety of alternative proximity measures, instrumental variables, and econometric approaches for dealing with endogeneity problems.

Teece (1986) - Profiting From Technological Innovation

2020-09-29T17:23:57Z

Maintenance script:

{{Article
|Has page=Teece (1986) - Profiting From Technological Innovation
|Has title=Profiting From Technological Innovation
|Has author=Teece
|Has year=1986
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference==

*Teece, D.J. (1986), "Profiting from technological innovation: Implications for integration, collaboration, licensing, and public policy," Research Policy. [http://www.edegan.com/pdfs/Teece%20(1986)%20-%20Profiting%20from%20technological%20innovation.pdf pdf]

@article{teece1986profiting,
title={Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy},
author={Teece, D.J.},
journal={Research policy},
volume={15},
number={6},
pages={285--305},
year={1986},
publisher={Elsevier}
}

==Abstract==

This paper attempts to explain why innovating firms often fail to obtain significant economic returns from an innovation, while customers, imitators and other industry participants benefit. Business strategy particularly as it relates to the firm’s decision to integrate and collaborate is shown to be an important factor. The paper demonstrates that when imitation is easy, markets don’t work well, and the profits from innovation may accrue to the owners of certain complementary assets, rather than to the developers of the intellectual property. This speaks to the need, in certain cases, for the innovating firm to establish a prior position in these complementary assets. The paper also indicates that innovators with new products and processes which provide value to consumers may sometimes be so ill positioned in the market that they necessarily will fail. The analysis provides a theoretical foundation for the proposition that manufacturing often matters. particularly to innovating nations. Innovating firms without the requisite ing and related capacities may die, even though they are the best at innovation. Implications for trade policy and domestic economic policy are examined.

==The Question==

Innovators, defined as the first to commercialize a new product or process in the market, often fail to capture the benefits of their innovation, despite a first mover advantage. This paper considers reasons why this might be the case.

==Three Fundamental Building Blocks==

===The Appropriability Regime===

The '''appropriability regime''' is made up of two components:
#The '''nature of the technology''' (tacit/codified knowledge)
#The '''efficacy of legal mechnisms of protection'''

'''Patents do not confer perfect appropriability''':
*They can be '''invented around''', often at modest costs
*They are especially ineffective at protecting process innovations
*'''Legal requirements''' for upholding their validity or proving their infringement '''are high'''

'''Trade secrets''' may be a viable alternative if the product does not reveal the technology (or it can not be reverse engineered). This is likely to be true when knowledge is '''tacit''', rather than '''codified'''. Tacit knowledge is by definition hard to articulate, and can only be transmitted by demonstration. Simplistically, an appropriability regime might be regarded as '''strong''' or '''weak''', with regard to good the protection is.

===Dominant Design Paradigm===

There are two stages of development of a branch of science (c.f. Kuhn):
*'''Preparadigmatic''' - there is no single generally accepted conceptual treatment of a branch of knowledge
*'''Paradigmatic''' - a body of theory appears to have passed the canons of acceptability.

The emergence of a '''dominant design''' signals normal "standards" upon which research proceeds. These remain in force until overturned by revolutionary science (c.f. Architectural Innovation). '''Abernathy and Utterback''' propose a similar notion for industries:
*First there is '''competition among designs'''
*Then there is '''competition over price''', and to a new set of variables.

In the second phase '''scale''' and '''learning''' become important. Innovation then takes place at the component level until the next revolution. The framework is particularly suited to mass markets with homogeneous products. Niche markets do not have scale and learning and so penalize multiple designs less.

===Complementary Assets===

The successful commericialization of an innovation requires that the '''know-how be used in conjunction''' with '''other assets or capabilities''' for production and distribution. There are three types:
*'''Generic''' assets - general purposes assets which do not need to be tailored
*'''Cospecialized''' assets with a '''unilateral dependence''': Either the innovation needs to be specialized to work with the asset, or vice versa
*'''Cospecialized''' assets with '''bilateral dependence''': Both the innovation and the asset need to be specialized to work with each other

'''Cospecialized assets''' need '''relational specific investments''' from one or both side (c.f. Williams). In the context of '''incomplete contracts''' (Teece doesn't mention this explicitly), there will be the possibility of '''hold up''', making contracting (without fiat) '''costly and difficult'''.

==Implications for Profitability==

===In Strong Appropriability Regimes===

Whether the protection is from patents, copyright or trade secrets, if it is iron-clad then whether the innovation occurs in a preparadigmatic or paradigmatic context, and whether the innovation needs cospecialized assets or not, it is anticipated the the '''innovator will (or at least can) succeed''' in capture the benefits of the innovation. If there is a need for cospecialized assets then there will still be hazards, but the innovator will not be competing with competitors for their control. Likewise, if the innovator comes to market in the preparadigmatic phase with an incorrect design, there should be time to refine the concept before being eclipsed by imitators.

===In Weak Appropriability Regimes===

Innovators must turn to business strategy to keep imitators at bay.

====In the Preparadigmatic Phase====

The innovator must 'float' the idea. This requires that the innovator be intimately coupled to the market so that user needs can fully impact the design. The '''probability of winning will be higher''' if the '''cost of prototyping is lower''' and the firm is '''more tightly coupled'''.

====In the Paradigmatic Phase====

Complementary assets are required - in this phase scale economies and least cost production matter critically. However, '''investments may be irreversible''', and '''success depends upon the terms under which cospecialized assets can be accessed'''. (Generalized assets are by their nature generally available). The party controlling the cospecialized assets is at an advantage relative to the innovator, because the innovation is essentially appropriable.

==Channel Strategy Issues==

This section considers how one should access cospecialized assets, generally assuming a weak appropriability regime. The options are:
*'''Contracting'''
*'''Integrating'''

Under contracting the innovator will not have to make '''up front payments''' to build or buy the asset, which '''reduces risk''' and capital requirements. The contract can be for a '''strategic partnership''' rather than a '''simple buy-sell agreement''', and in the former case can bring credibility to the innovator. But, in the paradigmatic phase, this has two problems:
*Suppliers must make '''relational specific investments''', which opens them to risks along with the innovator (and hold up by the innovator, though this isn't mentioned), so the innovator faces the "attracting venture capital problem" of '''information asymmetries''' (not explictly mentioned).
*The '''supplier may appropriate''' the technology

Note also, that contracts are likely (certain) to be '''incomplete''', meeting the full Williamson criteria for vertical integration, though the integration contract itself would still remain problematic.

'''Integration gives incentive alignment and control''' (assuming again that the integration contract can be achieved). If the innovator owns the complementary asset then he will recieve the spillover benefits from increased demand too - this makes buying up such assets (or taking futures contracts against them) very attractive. If the protection is iron-clad, the innovator may be able to '''buy at competitive prices'''. Otherwise the assets form a '''bottleneck''', and should be '''ranked in order of their importance'''. Critical assets should be bought first, or traded for a minority position, assuming that this is feasible given the competitive environment. In industries that are changing rapidly, it is unlikely that a single firm will be able to hold all of the assets. Speed is also clearly of the essence.

In summary, if no complementary assets are required, the innovator should '''commercialize immediately'''. If this is not the case then, if the innovator is in a '''weak approbility''' regime, needs a '''critical specialized asset''', has the '''cash to buy it''', and his '''competitors aren't better positioned''', he should '''buy it''', otherwise he should '''contract for it'''. On page 297, Teece provides a basic grid, in terms of how advantageously positioned the innovator is in terms of complementary assets, how well positioned he is to obtain them and the approbility regime, to "predict" whether the innovator will win the race.

It should be noted that there are mixed modes between contracting and integrating, and the decisions may change as either the appropriability changes or the market changes (enters a paradigmatic phase).

==Implications for R&D Strategy, Industry Structure and Trade Policy==

The firm should adjust its R&D investment portfolio towards innovations that are appropriable and for which the firm already has complementary assets. '''Large firms''' are more likely to hold complementary assets. Likewise, in '''industries''' that have inherently weak appropriability regimes, the control of cospecialized assets will be needed for '''long-run survival'''. As industries mature, they are both more likely to be paradigmatic (I claim), and firms are more likely to hold cospecialized assets already, making entry harder. When entry does occur it will involve coalition formation (strategic partnering, etc) early on. In industries with a high degree of change, assets may become redundant, and firm boundaries may be fragile.

The paper concludes with some thoughts, in terms of appropriability regimes and cospecialized asset holdings, on international competitiveness and trade implications.

Teece Pisano Shuen (1997) - Dynamic Capabilities And Strategic Management

2020-09-29T17:23:57Z

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{{Article
|Has page=Teece Pisano Shuen (1997) - Dynamic Capabilities And Strategic Management
|Has title=Dynamic Capabilities And Strategic Management
|Has author=Teece Pisano Shuen
|Has year=1997
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
*Teece, D., G. Pisano and A. Shuen (1997), "Dynamic capabilities and strategic management", Strategic Management Journal, 18, pp.509-533. [http://www.edegan.com/pdfs/Teece%20Pisano%20Shuen%20(1997)%20-%20Dynamic%20capabilities%20and%20strategic%20management.pdf pdf]

==Abstract==

No abstract available at this time.

Tadelis (2001) - The Market For Reputations As An Incentive Mechanism

2020-09-29T17:23:56Z

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{{Article
|Has page=Tadelis (2001) - The Market For Reputations As An Incentive Mechanism
|Has title=The Market For Reputations As An Incentive Mechanism
|Has author=Tadelis
|Has year=2001
|In journal=
|In volume=
|In number=
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|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==
Tadelis, S. (2001) "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy 110(4):854-882 [http://www.edegan.com/pdfs/Tadelis%20(2001)%20-%20The%20Market%20for%20Reputations%20as%20an%20Incentive%20Mechanism.pdf pdf]

==Abstract==
Reputational career concerns provide incentives for short-lived agents to work hard, but it is well known that these incentives disappear as an agent reaches retirement. This paper investigates the effects of a market for firm reputations on the life cycle incentives of firm owners to exert effort. A dynamic general equilibrium model with moral hazard and adverse selection generates two main results. First, incentives of young and old agents are quantitatively equal, implying that incentives are "ageless" with a market for reputations. Second, good reputations cannot act as effective sorting devices: in equilibrium, more able agents cannot outbid lesser ones in the market for good reputations. In addition, welfare analysis shows that social surplus can fall if clients observe trade in firm reputations.

==Summary==

The model seperates identities from entities (which have names), with the later having reputations. There is a market for names and two types of agent: good and opportunistic. The agents are short-lived but the transferability of the names creates a long-lived entity seperate from the identity of the agents. There is no seperating equilibria where only good or bad types buy names, but there are reputation dynamics - reputations increase after good performance and decrease after bad performance.

==The Model==

The model has the full base assumptions:
*Buyers and sellers are risk neutral
*Types of sellers are indistinguishable and are active for two periods with overlapping generations
*Sellers can choose a new name, keep their name or buy a name
*Only names have track records
*There is a competitive market of buyers so that prices are bid up to their expected surplus
*There is no discounting

In addition there are the following driving assumptions:
*There are no contingent contracts
*Shifts of name ownership are not observable
*Name changes are costless
*With probability <math>\epsilon \ge 0\,</math> a seller can not change his name (note that this is a technical assumption to rule out some 'bad' equilibria from costless name changes)

The model uses a rational expectations equilibrium.

There are two types of seller: <math>G\,</math> (good) exist in proportion <math>\gamma\,</math> and succeed with probability <math>P_G \in (0,1)\,</math>, and <math>O\,</math> (opportunistic) exist in proportion <math>1-\gamma\,</math> and success with probability <math>eP_G\,</math> where <math>e \in [0,1]\,</math> and have a cost of effort <math>c(e)\,</math> that satisfies Inada conditions.

The sequence of events is:
#New agents chooses or buys his name
#Buyer pays upfront
#Opportunistic type chooses effort
#Success or failure realized
#Retiring agent can sell his name/continuing agent can change their name

===Benchmark: No Reputations Markets===

Here we assume that names can not be traded and restrict attention to two periods with three generations. Generation 0 dies at the end of period 1, generation 1 lives for both periods, and generation 2 is born half way through and lives for period 2.

In period 1 there is one wage as everyone has a new name. In period 2 there are three wages depending on the <math>h\,</math> (histories) observed which are either <math>S\,</math> (success), <math>F\,</math> (failure), or <math>N\,</math> (new name). <math>F\,</math> histories are irrelevant as sellers who failed are better off costly changing their name.

<math>O\,</math> types will exert zero effort in the second period (as it is costly and contracts are made in advance) so <math>w_{2}(h)\,</math> only depends on clients' beliefs about the likelihood of <math>h\,</math> belonging to a <math>G\,</math> type.

Expected period 2 utility of an <math>O\,</math> type is:

:<math>\mathbb{E}u_{O} =w_{1}+eP_{G}w_{2}(S)+(1-eP_{G})w_{2}(N)-c(e) =w_{1}+eP_{G}\Delta w+w_{2}(N)-c(e)\,</math>

where <math>\Delta w\equiv w_{2}(S)-w_{2}(N)\,</math>

The equilibrium is characterized by the tuple <math>\left\langle w_{1},w_{2}(S),w_{2}(N),e\right\rangle\,</math> such that <math>e\,</math> is a best response given <math>w_{2}(S)\,</math> and <math>w_{2}(N)\,</math>, and all wages are correct given rational expectations about <math>e\,</math>

Equilibrium beliefs imply:

:<math>\Pr \{G|S\}=\frac{\gamma P_{G}}{\gamma P_{G}+(1-\gamma )eP_{G}}\,</math>

:<math>\Pr \{G|N\} =\frac{\gamma (1-P_{G})+\gamma }{\gamma (1-P_{G})+(1-\gamma)(1-eP_{G})+1} =\frac{2\gamma -\gamma P_{G}}{2-P_{G}[\gamma +(1-\gamma )e]}\,</math>

Equilibrium wages are:

:<math>w_{2}(h)=\Pr \{G|h\}\cdot P_{G}\,</math>

Fixing (for a moment) <math>\Delta w\,</math> the equilibrium <math>e\,</math> solves the FOC:

:<math>P_{G}\Delta w=c^{\prime}(e)\,</math>

However, optimal effort must solve:

:<math>P_{G} \ge c^{\prime }(e)\,</math>

The actual wage differential depends on the amount of effort that the <math>O\,</math> types exert. If all <math>O\,</math> types exert no effort (i.e. are bad) or full effort (i.e. are good) then we have:

:<math>\Delta w_{B}=\frac{2(1-\gamma )P_{G}}{2-\gamma P_{G}} \mbox{ and } \Delta w_{G}=0\,</math>

This leads to:

'''Proposition 1''': There is a unique equilibrium of the two-period model with no reputation markets. If <math>P_{G}\Delta w_{B} \le c^{\prime }(0)\,</math> then <math>e=0\,</math> in equilibrium. If <math>P_{G}\Delta w_{B}>c^{\prime }(0)\,</math> then <math>e\in (0,1)\,</math> in equilibrium.

Essentially if the opportunistic types exert no effort then the wage differential is the highest, but this provides them with an incentive to work in period 1.

===The Market for Reputations===

We now let retiring sellings from generation 0 to sell their names. Only successful names will be traded - and in fact <math>S\,</math> names will be traded in all equilibria. If no names were traded it is because they are worthless. But the supply of <math>S\,</math> names is positive, so it must be the case that <math>w_{2}(S)\leq w_{2}(N)\,</math>. But then <math>O\,</math> types would exert <math>e=0\,</math> in the first period and <math>Pr \{G|S\}=P_{G}\,</math>. However, <math>1-\gamma >0\,</math> implies that there are some <math>O\,</math> types and <math>\Pr \{S|N\}<P_{G}\,</math>, which in turn means that <math>w_{2}(S)>w_{2}(N)\,</math>, which is a contradiction.

To get an equilibrium the model assumes an arbitrage condition. The value of an <math>S\,</math> name is:

:<math>v(S)=w_{2}(S)-w_{2}(N)\,</math>

This naturally leads all period 1 <math>O\,</math> types to exert the same effort, as they have identical incentives, whether or not they bought a name.

We now need to establish the correct beliefs by buyers about effort in period 1 (again - <math>O\,</math> types will choose zero effort in period 2):

:<math>w_{1}=\left[ \gamma +(1-\gamma )e\right] P_{G}\,</math>

and

:<math>w_{2}(h)=\Pr \{S|h\}=\Pr\{G|h\}\cdot P_{G}\,</math>

Let <math>\mu\,</math> denote the proportion of <math>G\,</math> types who buy <math>S\,</math> names in <math>t=2\,</math>, and <math>\rho\,</math> the proportion of <math>O\,</math> types. Then an equilibrium is specified as a tuple <math>\left\langle \mu ,\rho ,w_{1},w_{2}(S),w_{2}(F),w_{2}(N),v(S),e\right\rangle\,</math>, with the beliefs about <math>\mu ,\rho and e\,</math> pinning it down. The equilibrium must satisfy the (supply equals demand) market clearing condition:

:<math>\gamma P_{G}+(1-\gamma )eP_{G}=\mu \gamma +\rho (1-\gamma)\,</math>

The beliefs must therefore be (after some algebra and plugging in market clearing):

:<math>\Pr \{G|S\}=\frac{\gamma P_{G}+\gamma \mu }{2\gamma P_{G}+2(1-\gamma )eP_{G}}\,</math>

:<math>\Pr \{G|N\} =\frac{2\gamma -\gamma P_{G}-\mu \gamma }{2-2\gamma P_{G}-2eP_{G}(1-\gamma)}\,</math>

'''Proposition 4''': There exist <math>\underline{\mu }<\overline{\mu }\,</math> so that <math>(\mu ,\rho ,e)\,</math> is an equilibrium if and only if the following three conditions hold:
#<math>\mu \in [\underline{\mu },\overline{\mu}]\,</math>
#<math>(\mu ,\rho ,e)\,</math> satisfy market clearing
#<math>c^{\prime }(e)=\Delta wP_{G}\,</math>

As long as the price for names reflects the wage differential that the name generates, sellers will be indifferent. At <math>\underline{\mu}\,</math> either the price of an <math>S\,</math> name is sero, or there are too few good types in the second period so that even when all <math>S\,</math> names are bought by bad types this is still better than having no history. In the interval prices for the <math>S\,</math> names are positive, and at the upper bound all good new types are buying the names without violating market clearing.

In order to perform some welfare comparisons between the benchmark (which would result if trade could be made observable, say by regulation) and this model, we need to select an equilibrium from each. To do this, we need to restrict the multiple equilibria in this model - this is done by assuming that name buyers are in proportion to their population. Therefore:

:<math>\mu ^{*}=\rho ^{*}=\gamma P_{G}+(1-\gamma )eP_{G}\,</math>

Again we now consider when all <math>O\,</math> types are good <math>(e=1)\,</math> or bad (<math>e=0)\,</math> to get:

:<math>\Delta w_{B}(\mu ^{*})=\frac{P_{G}(1-\gamma )}{2(1-\gamma P_{G})} \mbox{ and }\Delta w_{G}(\mu ^{*})=0\,</math>

The market for names is bad (in the welfare sense) if:

:<math>\Delta w_{B}(\mu^{*})<\Delta w_{B}\,</math>

Which is true when:

:<math>P_{G}<\frac{2}{3\gamma}\,</math>

===Longer Horizon and Sorting===

The paper goes on to discuss longer horizons and sorting. The derivations will not be discussed here but the following propositions are provided:

'''Proposition 6''': Names with a history consisting of only one success and no failures must be traded in all equilibria.

'''Proposition 7''': For the infinite horizon model there is no equilibrium in which only <math>S\,</math> names are traded, and these are bought only by good types and by opportunistic types who choose to be good.

This sorting result is important. Suppose it were true, then it would affect beliefs - Observing an <math>S\,</math> name would lead to the inference that it is held by a good (or good opportunistic) type. Then an <math>S\,</math> name would command a premium, and <math>O\,</math> types would value it higher because they face a less attractive future without it.

Teece (1982) - Towards An Economic Theory Of The Multiproduct Firm

2020-09-29T17:23:56Z

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{{Article
|Has page=Teece (1982) - Towards An Economic Theory Of The Multiproduct Firm
|Has title=Towards An Economic Theory Of The Multiproduct Firm
|Has author=Teece
|Has year=1982
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
*Teece, D. (1982), "Towards an economic theory of the multiproduct firm", Journal of Economic Behavior and organization, 3, pp.39-63. [http://www.edegan.com/pdfs/Teece%20(1982)%20-%20Towards%20an%20economic%20theory%20of%20the%20multiproduct%20firm.pdf pdf]

==Abstract==
This paper outlines a theory of the multiproduct finrm. Important building blocks include excess capacity and its creation, market imperfections, and the peculiarities of organizational knowledge, including its fungible tacit character. A framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high trdnsacdons costs associated with
using markets to trade the services of various specialized assets. Neoclassical explanations of the multiproduct firm are shown to be seriously deficient.

Stuart Hoang Hybels (1999) - Interorganizational Endorsements And The Performance Of Entrepreneurial Ventures

2020-09-29T17:23:55Z

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{{Article
|Has page=Stuart Hoang Hybels (1999) - Interorganizational Endorsements And The Performance Of Entrepreneurial Ventures
|Has title=Interorganizational Endorsements And The Performance Of Entrepreneurial Ventures
|Has author=Stuart Hoang Hybels
|Has year=1999
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Sociological_Approaches_to_Entrepreneurship | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Stuart, Toby E., Ha Hoang and Ralph C. Hybels (1999), "Interorganizational endorsements and the performance of entrepreneurial ventures", Administrative Science Quarterly, 44: 315-349 [http://www.edegan.com/pdfs/Stuart%20Hoang%20Hybels%20(1999)%20-%20Interorganizational%20Endorsements%20And%20The%20Performance%20Of%20Entrepreneurial%20Ventures.pdf pdf]

==Abstract==

This paper investigates how the interorganizational networks of young companies affect their ability to acquire the resources necessary for survival and growth. We propose that, faced with great uncertainty about the quality of young companies, third parties rely on the prominence of the affiliates of those companies to make judgments about their quality and that young companies "endorsed" by prominent exchange partners will perform better than otherwise comparable ventures that lack prominent associates. Results of an empirical examination of the rate of initial public offering (IPO) and the market capitalization at lP0 of the members of a large sample of venture-capital-backed biotechnology firms show that privately held biotech firms with prominent strategic alliance partners and organizational equity investors go to lP0 faster and earn greater valuations at lP0 than firms that lack such connections. We also empirically demonstrate that much of the benefit of having prominent affiliates stems from the transfer of status that is an inherent byproduct of interorganizational associations.

Syverson (2011) - What Determines Productivity

2020-09-29T17:23:55Z

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{{Article
|Has page=Syverson (2011) - What Determines Productivity
|Has title=What Determines Productivity
|Has author=Syverson
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|In volume=
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|Has publisher=
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*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Productivity_and_Entrepreneurship | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Syverson, C. (2011), "What Determines Productivity?", Journal of Economic Literature, (forthcoming). [http://home.uchicago.edu/~syverson/productivitysurvey.pdf Author's website] [http://www.edegan.com/pdfs/Syverson%20(2011)%20-%20What%20Determines%20Productivity.pdf pdf]

==Abstract==

Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices-and therefore over which producers have some direct control, at least in theory-as well as from producers’ external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward.

Sternitzke Bartkowski Schramm (2008) - Visualizing Patent Statistics By Means Of Social Network Analysis Tools

2020-09-29T17:23:54Z

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{{Article
|Has page=Sternitzke Bartkowski Schramm (2008) - Visualizing Patent Statistics By Means Of Social Network Analysis Tools
|Has title=Visualizing Patent Statistics By Means Of Social Network Analysis Tools
|Has author=Sternitzke Bartkowski Schramm
|Has year=2008
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Sternitzke, C., Bartkowski, A. and Schramm, R. (2008), "Visualizing patent statistics by means of social network analysis tools", World Patent Information, Vol.30, No.2, pp.115--131

@article{sternitzke2008visualizing,
title={Visualizing patent statistics by means of social network analysis tools},
author={Sternitzke, C. and Bartkowski, A. and Schramm, R.},
journal={World Patent Information},
volume={30},
number={2},
pages={115--131},
year={2008},
abstract={The present paper reviews the literature on social network analysis with applications to bibliometric data, and in particular, patent information. Several approaches of network analysis are conducted in the field of optoelectronics to exemplify the power of network analysis tools. Cooperation networks between inventors and applicants are illustrated, emphasizing bibliometric measures such as activity, citation frequency, etc. as well as network theoretical measures, e.g. centrality or betweenness. In this context it is found that inventors who serve as interfaces or links between different inventor groups apply for technologically broader patents, hence, benefiting from their access to different knowledge through their position. Furthermore, citation networks of patent documents as well as patent applicants were drawn. Here, patent thickets could be identified. The position of applicants within citation networks seems to be useful in explaining behaviour of the applicants in the marketplace, such as cooperation or patent infringement trials.},
discipline={Econ},
research_type={Measures,Empirical},
industry={},
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thicket_stance_extract={},
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tags={},
filename={Sternitzke Bartkowski Schramm (2008) - Visualizing Patent Statistics By Means Of Social Network Analysis Tools.pdf}
}

==File(s)==

*[[Media:Sternitzke Bartkowski Schramm (2008) - Visualizing Patent Statistics By Means Of Social Network Analysis Tools.pdf|Download the PDF]]
*[[:Image:Sternitzke Bartkowski Schramm (2008) - Visualizing Patent Statistics By Means Of Social Network Analysis Tools.pdf|Repository record]]

==Abstract==

The present paper reviews the literature on social network analysis with applications to bibliometric data, and in particular, patent information. Several approaches of network analysis are conducted in the field of optoelectronics to exemplify the power of network analysis tools. Cooperation networks between inventors and applicants are illustrated, emphasizing bibliometric measures such as activity, citation frequency, etc. as well as network theoretical measures, e.g. centrality or betweenness. In this context it is found that inventors who serve as interfaces or links between different inventor groups apply for technologically broader patents, hence, benefiting from their access to different knowledge through their position. Furthermore, citation networks of patent documents as well as patent applicants were drawn. Here, patent thickets could be identified. The position of applicants within citation networks seems to be useful in explaining behaviour of the applicants in the marketplace, such as cooperation or patent infringement trials.

Strandburg (2006) - Law And The Science Of Networks

2020-09-29T17:23:54Z

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{{Article
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Strandburg, K.J. (2006), "Law and the Science of Networks: An Overview and an Application to the ``Patent Explosion"", bepress Legal Series, pp.1617

@article{strandburg2006law,
title={Law and the Science of Networks: An Overview and an Application to the ``Patent Explosion"},
author={Strandburg, K.J.},
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==File(s)==

*[[Media:Strandburg (2006) - Law And The Science Of Networks.pdf|Download the PDF]]
*[[:Image:Strandburg (2006) - Law And The Science Of Networks.pdf|Repository record]]

==Abstract==
The network may be the metaphor of the present era. A network, consisting of “nodes” and “links,” may be a group of individuals linked by friendship; a group of computers linked by network cables; a system of roads or airline flights -- or another of a virtually limitless variety of systems of connected “things.” The past few years have seen an explosion of interest in “network science,” which seeks to move beyond metaphor to analysis in fields from physics to sociology. Network science highlights the role of relationship patterns in determining collective behavior. It underscores and begins to address the difficulty of predicting collective behavior from individual interactions. This Article seeks first to describe how network science can provide new conceptual and empirical approaches to legal questions because of its focus on analyzing the effects of patterns of relationships on collective behavior.

The Article then illustrates the network approach by describing a study of the network created by patents and the citations between them. Burgeoning patenting has raised concerns about patent quality, reflected in proposed legislation and in renewed Supreme Court attention to patent law. The network approach allows us to get behind the increasing numbers and investigate the patterns of relationships between patented technologies. We can then distinguish between faster technological progress, increasing breadth of patented technologies, and a lower patentability standard as possible explanations for increased patenting. We find that, since the late 1980s, the disparity in likelihood of citation between the most “citable” and least “citable” patents has grown, suggesting that the least citable patents may represent increasingly trivial inventions. One possible explanation of this increasing stratification is increasing reliance by the Federal Circuit Court of Appeals on the widely criticized “motivation or suggestion to combine” test for nonobviousness, which is at issue in the case of KSR v. Teleflex, currently pending at the Supreme Court. We also discuss how network science may be employed to address other issues of patent law.
==Review==
===Definition of Patent Thicket===
:''"On the one hand, there is the fear of a patent "thicket" in which the transaction costs associated with obtaining the necessary patent licenses to do something of practical usefulness become so high as to undermine the social value of the patents."''

===Sample===

*16 million citations by over 2 million patents issued by the USPTO from 1975-1999 from the USPTO (and application counts since 1800).
**Dataset constructed by Hall, Jaffe, and Trajtenberg;
**LEXIS searches of Federal Circuit for cases involving patent obviousness claims referring to the "suggestion, teaching, or motivation to combine" test, 1977-2006.

===Results===
*Authors define a "citability function" Ak(k)~kα, where k is the number of times a patent has been cited, and A(k) is the probability that the patent will be cited again.
**Alpha is a measure of the extent to which highly cited patents are preferred.
**Alpha is estimated to be 1.19 from 1975 onward.
**Variations in alpha by industry were not found.
:''"However, the fact that α>1 in the patent network still suggests that citations are highly concentrated -- there is a highly unequal distribution of patent 'citability.' " ''
:''"Since citability is likely related to a patent’s technical importance, the increasing stratification suggests that the patentability may have decreased, resulting in the issuance of a larger fraction of more trivial patents."''
*Al(l)~l-β, where l is the patent’s age in patent numbers, and A(l) is the probability that the patent will be cited again.
**Beta is a measure of the extent to which highly cited patents are preferred;
**Beta is estimated to be 1.6 from 1975 onward implying a long, slow decay. Citability peaks at relatively young age
** Al(l) was found to be relatively independent of k.

===Social Welfare Consequences===
*It is argued that the new standard of nonobviousness is not rigorous enough, and thus, it leads to too many patents being granted.
:''"The proliferation of patents results in a situation in which many commercial products require the use of more than one -- and in some cases hundreds of – patented technologies...there is the fear of a patent 'thicket' in which the transaction costs associated with obtaining the necessary patent licenses to do something of practical usefulness become so high as to undermine the social value of the patents."''
===Policy Advocated===
*Network science should be further developed to evaluate and determine the best practices for the USPTO.

Spiller (2008) - An Institutional Theory Of Public Contracts Regulatory Implications

2020-09-29T17:23:53Z

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|Has year=2008
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|In volume=
|In number=
|Has pages=
|Has publisher=
}}

==Reference(s)==
Spiller, Pablo (2008), "An Institutional Theory of Public Contracts: Regulatory Implications", NBER Working Paper 14152, http://www.nber.org/papers/w14152 [http://www.edegan.com/pdfs/Spiller%20(2008)%20-%20An%20Institutional%20Theory%20of%20Public%20Contracts%20Regulatory%20Implications.pdf pdf]

==Abstract==
The fundamental feature of private contracting is its relational nature. When faced with unforeseen or unexpected circumstances, private parties, as long as the relation remains worthwhile, adjust their required performance without the need for costly renegotiation or formal recontracting. Public contracting, on the other hand, seems to be characterized by formalized, standardized, bureaucratic, rigid procedures. Common wisdom sees public contracts as generally more inflexible, requiring more frequent formal renegotiation, having a higher tendency to litigate, and providing weaker incentives. In sum, public contracts are perceived to be less "efficient." In this paper I develop a theory of public contracting that accommodates these stark differences between private and public contracting. The thrust of the paper is that these differences arise directly because of the different hazards present in public and purely private contracts, which directly impact the nature of the resulting contractual forms. A fundamental corollary of this result is that the perceived inefficiency of public or governmental contracting is simply the result of contractual adaptation to different inherent hazards, and as such is not directly remediable. Finally, I apply the main insights from the general framework developed here to understand the characteristics of concession contracts.

Spiller Gely (1992) - Congressional Control Or Judicial Independence

2020-09-29T17:23:53Z

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|Has page=Spiller Gely (1992) - Congressional Control Or Judicial Independence
|Has title=Congressional Control Or Judicial Independence
|Has author=Spiller Gely
|Has year=1992
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
==Reference(s)==
Spiller, Pablo T. and Rafael Gely (1992), "Congressional Control or Judicial Independence: The Determinants of U.S. Supreme Court Labor-Relations Decisions, 1949-1988", The RAND Journal of Economics, Vol. 23, No. 4 (Winter), pp. 463-492. [http://www.edegan.com/pdfs/Spiller%20Gely%20(1992)%20-%20Congressional%20Control%20or%20Judicial%20Independence.pdf pdf]

==Abstract==
Extending the approach to congressional and regulatory institutions developed by Shepsle and Weingast, this article introduces an ideologically motivated judiciary. The model yields empirically refutable implications which are then tested in the framework of modelling the Court's decisions on industrial labor relations. Using information on politicians' ADA scores, the composition of the Court, and the decisions of the Court, we obtain estimates of (a) the position of the Court in relation to the relevant members of Congress, and (b) the determinants of labor policy through the years. We find, first, that the Court was constrained by Congress over at least half of the period. Second, a 10-point increase in the ADA rating of the relevant member of Congress, or in the imputed ADA rating of the Supreme Court, increases the probability of a pro-union decision by approximately eight percentage points. Third, the imputed political preferences of the Court seem to be well explained simply by its political composition. Fourth, the Court does not seem to defer to the NLRB. Finally, though parsi- monious, our model is a relatively good predictor of the Court's decisions, and superior to both a simple political bargaining model without institutional content and a nonsophisticated or purely legalistic judicial decision-making model. Our results, then, suggest that the Court responds, albeit indirectly, to interest group pressures.

Spence (1984) - Cost Reduction Competition And Industry Performance

2020-09-29T17:23:52Z

Maintenance script:

{{Article
|Has page=Spence (1984) - Cost Reduction Competition And Industry Performance
|Has title=Cost Reduction Competition And Industry Performance
|Has author=Spence
|Has year=1984
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[PHDBA602 (Innovation Models)]]

==Reference(s)==

*Spence, Michael (1984), "Cost Reduction, Competition, and Industry Performance', Econometrica, Vol. 52, No. 1 (Jan.), pp. 101-122 [http://www.edegan.com/pdfs/Spence%20(1984)%20-%20Cost%20Reduction%20Competition%20and%20Industry%20Performance.pdf (pdf)]

==Abstract==

In many markets, firms compete over time by expending resources with the purpose of reducing their costs. Sometimes the cost reducing investments operate directly on costs. In many instances, they take the form of developing new products that deliver what customers need more cheaply. Therefore product development can have the same ultimate effect as direct cost reduction. In fact if one thinks of the product as the services it delivers to the customer (in the way that Lancaster pioneered), then product development often is just cost reduction. There are at least three sorts of problems associated with industry performance. They occur simultaneously, making the problem of overall assessment of performance quite complicated. The problems are these. Cost reducing expenditures are largely fixed costs. In a market system, the criterion for determining the value of cost reducing R & D is profitability, or revenues. Since revenues may understate the social benefits both in the aggregate, and at the margin, there is no a priori reason to expect a market to result in optimal results. Second and related, because R & D represents a fixed cost, and depending upon the technological environment, sometimes a large one, market structures are likely to be concentrated and imperfectly competitive, with consequences for prices, margins, and allocative efficiency.

==The Model==

There are <math>n\;</math> firms, indexed by <math>i\;</math>, with costs depending on time <math>t\;</math> of <math>c_i(t)\;</math>.

'''Costs''' depend on accumulated investment the firm and possibly other firms:

:<math>c_i(t) = F(z_i(t))\;</math>

where <math>F(\cdot)\;</math> is a decreasing function of <math>z_i\;</math>, which is accumulated knowledge obtained by firm <math>i\;</math>.

Suppressing the <math>t\;</math>, we denote <math>c = (c_1,\ldots,c_n) = (F(z_1),\ldots,F(z_n))\;</math>

:<math>m(t)\;</math> is the '''current expenditure on R&D''' at time <math>t\;</math>, and it is assumed that:

:<math>\dot{z}_i(t) = m_i(t) + \theta \sum_{j \ne i} m_j(t)\;</math>

where <math>\theta \in [0,1]\;</math> measures the degree of spillovers, and <math>\dot{z}_i(t)\;</math> is <math>\frac{\partial z_i(t)}{\partial t}\;</math>.

Letting <math>M_i = \int_0^t m_i(\tau) d\tau\;</math> be the '''accumulated investment in R&D''' by time <math>t\;</math>, we have:

:<math>z_i(t) = M_i(t) + \theta \sum_{j \ne i} M_j(t)\;</math>

Suppressing the <math>t\;</math>, we denote <math>z = (z_1,\ldots,z_n)\;</math>. Also, we note that <math>z_i(0) = 0\;</math>.

The '''benefits''' from selling <math>x\;</math> units are <math>B(x)\;</math>, and the '''inverse demand''' is <math>B'(x)\;</math>.

The '''output''' by firm <math>i\;</math> is <math>x_i\;</math>, such that <math>x = \sum_i x_i\;</math>

The '''profits''' for firm <math>i\;</math> are:

:<math>E^i = x_i B'(x) - c_i x_i\;</math>

It is assumed that an equilibrium exists and is unique given <math>c\;</math> or <math>z\;</math>.

Let <math>x_i(z)\;</math> and <math>x(z)=\sum_i x_i(z)\;</math> be the '''equilibrium'''.

The '''consumer surplus''' is:

:<math>H(z) = B(x(z)) - x(x)\cdot B'(x(z))\;</math>

The '''earnings gross of R&D expenditure''' for a firm are:

:<math>E_i(z) = x_i(z)B'(x(z)) - c_i(z_i)x_i(z)\;</math>

Given that R&D occurs at the outset only, we don't need to worry about intertemporal considerations. We can treat the gross earnings as a present value.

Supposing that the '''subsidy for R&D''' is s, so that 1 unit of R&D costs <math>(1-s)\;</math>, the '''earnings net of R&D''' is:

:<math>V^i = E^i(z) - (1-s)M_i\;</math>

As the firm takes the <math>M_j\;</math> of its rivals as given, it maximizes <math>V^i\;</math> wrt <math>M_i\;</math> by setting:

:<math>E_i^i + \theta \sum_{j \ne i} E_j^i = (1-s)\;</math>

Where <math>E_j^i\;</math> denotes the derivitive of <math>E^i\;</math> wrt <math>a_j\;</math>.

Given the equilibrium values <math>M = (M_1,\ldots,M_n)\;</math>, the '''total surplus''' is:

:<math>T(M) = H(z(M)) + \sum_i V^i (M) - s \sum_i M_i\;</math>

where <math>s \sum_i M_i\;</math> is the cost (to the public sector) of the subsidies (note that the paper says <math>x\;</math> instead of <math>s\;</math> here, but that is surely a typo).

===Maintained Assumptions===

There are the following maintained assumptions, which merit some discussion:
*There are no diminishing returns to current R&D expenditure, implicit in <math>\dot{z}\;</math>
*The goods produced are the same (i.e. the product is homogenous)
*R&D is done at the outset in a lump (this comes from the model) - which allows us to treat everything as present values.

==The Symmetric Case==

Taking:

:<math>E_i^i + \theta \sum_{j \ne i} E_j^i = (1-s)\;</math>

And making <math>E\;</math> a function of both a scalar <math>v\;</math> and a vector of ones <math>e\;</math>, we have:

:<math>E_i^i(ve) + \theta \sum_{j \ne i} E_j^i(ve) = (1-s)\;</math>

Then we define a new function:

:<math>R(v) = \int_0^v \left (E_i^i(ve) + \theta \sum_{j \ne i} E_j^i(ve) \right )\;</math>

Which is the '''total benefits from R&D''' as a function of a single parameter <math>v\;</math>, such that the '''marginal benefits from R&D''' are:

:<math>R'(v) = 1-s\;</math>

And therefore the market acts as if it were maximizing (wrt to <math>v\;</math>):

:<math>R(v) = (1-s)v\;</math>

Using symmetry so that <math>M_i = M\;</math>, and <math>z_i = z\;</math>, we then have:

:<math>v = (1+\theta (n-1))\cdot M = K(\theta,n)\cdot M \quad K = (1+\theta (n-1))\;</math>

'''Expenditures per firm''' are:

:<math>M = \frac{z}{K}\;</math>

And '''total surplus''' is:

:<math>T(M) = H(z,n) + nE(z,n) - n M\;</math>

==Properties of the Market Equilibria==

The function <math>R\;</math> (which I labelled the total benefits from R&D), captures the market incentives with respect to R&D. Assuming <math>E_j^i < 0 , \; i \ne j\;</math>, then:
*<math>R_{\theta} < 0\;</math>: Benefits are decreasing in spillovers
*<math>R_{z \theta} < 0\;</math>: ...

Siebert VonGraevenitz (2010) - Licensing In The Patent Thicket Timing And Benefits

2020-09-29T17:23:51Z

Maintenance script:

{{Article
|Has page=Siebert VonGraevenitz (2010) - Licensing In The Patent Thicket Timing And Benefits
|Has title=Licensing In The Patent Thicket Timing And Benefits
|Has author=Siebert VonGraevenitz
|Has year=2010
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Siebert, R.B. and Von Graevenitz, G. (2010), "Licensing in the Patent Thicket-Timing and Benefits", Working Paper

@article{siebert2010licensing,
title={Licensing in the Patent Thicket-Timing and Benefits},
author={Siebert, R.B. and Von Graevenitz, G.},
year={2010},
abstract={Complex high technology industries are increasingly affected by patent thickets in which firms patents mutually block the use of important technologies. Firms facing patent thickets patent intensively to acquire bargaining chips and use licensing to ensure freedom to operate. Such licensing allows rivals to either avoid or resolve hold-up from blocking patents. R&D incentives depend on whether licensing takes place ex ante or ex post. We model the choice between ex ante licensing and entry into patent portfolio races leading to ex post licensing. It is shown that higher degrees of blocking lead firms to license ex post, while stronger product market competition leads firms to license ex ante. Empirical results support these theoretical predictions.},
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==File(s)==

*[[Media:Siebert VonGraevenitz (2010) - Licensing In The Patent Thicket Timing And Benefits.pdf|Download the PDF]]
*[[:Image:Siebert VonGraevenitz (2010) - Licensing In The Patent Thicket Timing And Benefits.pdf|Repository record]]

==Abstract==

Complex high technology industries are increasingly affected by patent thickets in which firms patents mutually block the use of important technologies. Firms facing patent thickets patent intensively to acquire bargaining chips and use licensing to ensure freedom to operate. Such licensing allows rivals to either avoid or resolve hold-up from blocking patents. R&D incentives depend on whether licensing takes place ex ante or ex post. We model the choice between ex ante licensing and entry into patent portfolio races leading to ex post licensing. It is shown that higher degrees of blocking lead firms to license ex post, while stronger product market competition leads firms to license ex ante. Empirical results support these theoretical predictions.

==Review==

===Measures of Patent Thicket===

Two measures related to patent thickets are considered:
*Realized blocking ability between firms as a measure of hold-up potential and is the product of:
**The sum of citation intensity for firms paired for analysis, each of which is the share of citations on the patents of a firm (i) that point to patents belonging to the paired firm (j) given the total citations by the firm (i) to other firms' patents.
**Technological proximity, measured by the uncentered correlation coefficient of paired firms' patent applications in a year across 9 patent classes (semiconductors, memory and microcomponents).
**Expected blocking is also considered as a factor in ex ante licensing decision using the lagged value of the realized blocking measure.
*Fragmentation of the patent citation stock between the two firms at a point in time following the measure constructed by Ziedonis (2004), with a sample size correction following Hall (2005).

===Sample===

30,905 firm pairs observed annually between 1989-1999, where at least one firm's principal line of business is in the semiconductor industry.
*Data analyzed includes 212 ex ante and 261 ex post licensing events after sample selections and exclusions due to missing data.
*Firm sample restrictions include:
**Only firms producing output in a given year (positive market share);
**Only firms that engage in horizontal (as opposed to vertically integrated) technology licensing - at least 50% of sales of firms are from semiconductors;
**Excluding licenses related to production, marketing or litigation;
**Only firms with non-missing data.
*847 licenses were gathered from Thomson Financial, supplemented by public information including business reports and filings published in the National Cooperative Research Act, and classified into 549 ex ante contracts and 298 ex post contracts prior to sample restrictions.
*Firm level financial data is from Gartner Group, and 60% were headquartered in the U.S.
*U.S. patents in 9 technology classes (related to memory chips, microcomponents and other semiconductor devices) are drawn from the NBER patent database, which covers 1963-1999, with citations covering 1975-1999.

===Results===
In aggregate:
*Licensing increased from 1988, then declined after 1994, driven primarily by a decline in (predominant) ex ante contracts.
*Blocking ability in firm pairs similarly increased then decreased, while fragmentation of patent rights in firm pairs generally rose.

Ex ante licensing:
*Chances of ex ante licensing increase with expected blocking ability.
:''"A one standard deviation increase in the expectation of blocking raises the probability of observing ex ante licensing by 0.0009 at the mean. This is an increase of 17% in the probability of ex ante licensing."''
*Chances of ex ante licensing fall with fragmentation.
:''"Turning to the fragmentation of firms patent citations we observe that this variable increased by over 0.4 over the sample period. This corresponds to a smaller probability of observing ex ante licensing of 10%."''
Ex post licensing:
*Chances of ex post licensing increase with actual blocking ability.
:''"The probability of observing ex post licensing rises by 0.0038 (54%) if blocking increases by one standard deviation at the mean."
*Chances of ex post licensing fall with fragmentation.
Measures of relative bargaining strength have qualitatively similar impacts on the mean chance of ex ante and ex post licensing:
*Chances of licensing rise as paired firms have larger market shares;
*Chances of licensing rise as paired firms have more symmetric market shares;
*Chances of licensing rise as paired firms have a larger patent stock.
The level of patenting by firm pairs:
*Falls by 12.5 patents for firms entering ex ante licenses;
*Rises by 4.36 patents with a 1 standard deviation increase in blocking;
*Increases by 6.5 patents for a 0.4 increase in fragmentation (the average increase in fragmentation over the sample).

===Social Welfare Consequences===
:''"These results demonstrate that expected blocking has important effects on firms’ propensity to license ex ante. Additionally, we find that ex ante licensing matters especially for large firm pairs in which partners are symmetrical. If firms have large patent portfolios they are less inclined to engage in ex ante licensing. More importantly, perhaps, we find that the trend towards greater fragmentation of patent citations undermines ex ante licensing significantly. This shows that as the potential for hold up grows due to greater fragmentation of patent ownership, ex ante licensing is less useful in preventing hold-up."''

:''"Ex post licensing is an important mechanism for firm pairs that have not licensed ex ante but find that they block each others patents to a significant degree. Especially larger and more symmetrical firm pairs resolve this problem by licensing ex post. Increasing fragmentation of patent citations also has a significant marginal effect on the ex post licensing decision. The sign of the coefficient indicates that ex post licensing is less likely as fragmentation increases."''

:''"Our results underline that licensing in the patent thicket is primarily important for large, symmetric firm pairs and is used to resolve potential hold-up. Overall the empirical results confirm semiconductor firms behave as if they are competing in patent portfolio races."

===Social Welfare Consequences===
:''"we find that the fragmentation of patent rights reduces firms’ propensity to license ex ante and ex post. Thus, a deepening of patent thickets resulting from more complex blocking relationships seems to undermine the usefulness of licensing to resolve blocking."''

===Dependent Variable and Model===
There are 2 independent variables:
*Whether a firm enters into an ex ante, and ex post or no contract modeled using a bivariate probit selection model.
*The joint level of patent applications in a firm pair for a given year.
Models control for:
*Realized blocking ability between firms as a measure of hold-up potential and is the product of:
**The sum of citation intensity for firms paired for analysis, each of which is the share of citations on the patents of a firm (i) that point to patents belowing to the paired firm (j) given the total citations by the firm (i) to other firms' patents;
**Technological proximity, measured by the uncentered correlation coefficient of paired firms' patent applications in a year across 9 patent classes (semiconductors, memory and microcomponents).
*Expected blocking ability, is the value of realized blocking described above lagged one year prior to the decision to engage in ex ante licensing.
**Expected blocking is insignificant when included as an explanatory variable for the ex post licensing decision, and therefore the preferred model excludes this variable when modelling the ex post licenting decision.
*Average patent stock;
*Difference in patent stocks of paired firms;
*Fragmentation of the patent citation stock between the two firms at a point in time following the measure constructed by Ziedonis (2004), with a sample size correction following Hall (2005);
*Market shares, as a measure of product competition;
*Difference in market shares of paired firms, as a measure of product competition;
*multimarket participation, measured by the number of different product markets (3 markets microcomponents, memory chips, other devices) within the semiconductor industry in which the firm has positive market shareand is intended as a measure of product competition;
*Previous ex post contracts;
*Previous ex ante contracts;
*Indicators for each year from 1990-1998.

Snyder (1991) - On Buying Legislatures

2020-09-29T17:23:51Z

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{{Article
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|Has title=On Buying Legislatures
|Has author=Snyder
|Has year=1991
|In journal=
|In volume=
|In number=
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|Has publisher=
}}
[http://www.edegan.com/wiki/images/d/da/On_Buying_Legislatures_by_James_Snyder.pdf Full-text PDF]

==Abstract==

This paper analyzes a simple spatial voting model that includes lobbyists who are able to buy votes on bills to change the status quo . The key results are: (i) if lobbyists can discriminate across legislators when buying votes, then they will pay the largest bribes to legislators who are slightly opposed to the proposed change, rather than t o legislators who strongly support or strongly oppose the change; (ii) equilibrium policies exist, and with quadratic preferences these equilibria always lie between t h e average of t h e lobbyists’ ideal points a n d the median of the legislators’ ideal points; and (iii) “moderate” lobbyists, whose positions on a policy issue are close to the median of the legislators’ ideal points, will prefer the issue to be salient, while more extreme lobbyists will generally prefer the issue to be obscure.

==Model Setup==

The model examines a policy space <math>x\in R</math> and a lobbyist's efforts to bribe legislators to adopt a policy near his ideal point. The lobbyist's utility function is <math>u(x,B)=-(x-L)^{2}</math>, where x is the policy chosen, L is the lobbyist's ideal point and B is the total number of bribes paid to legislators. The lobbyist is assumed to have an infinite budget.

The legislature is infinitely sized and consists of individual legislators whose ideal points <math>z</math> are distributed uniformly over [-0.5,0.5] (so z~<math>U[-0.5,0.5]</math>). Legislators preferences preferences are also negative quadratic. A legislator will choose policy x over policy y iff <math>b_{x}-\alpha(x-z)^{2}>b_{y}-\alpha(y-z)^{2}</math>, where <math>b_{x},b_{y}</math> refer to the amount of bribes offered for voting for position x or y, and z is the legislator's ideal point. The parameter <math>\alpha</math> represents the "intensity" of the legislator's preferences -- ie, how much he cares. One might alternatively think of <math>\alpha</math> as how much his constituents care.

===Rui's Notes about what the setup means===
* Median voter has ideal point 0.
* Bribes conditional on votes, not outcomes.

==With Price Discrimination (1) ==

The paper first attempts to solve for equilibrium strategies in which the lobby know the individual legislator's ideal points and can offer bribes that depend on their ideal points.

===Proposition 1===

Suppose s is the status quo and let <math>x>s</math> be an alternative proposal. If <math>0<(x+s)/2\leq 1/2</math>, then the least cost payment function <math>b_{D}(\dot,x,s)</math> which insures that x ties or defeats s is given by the following: If <math>z\in[0,(s+x)/2], b_{D}(z,x,s)=\alpha(x^2-s^2-2(x-s)z)</math>, and <math>b_{D}(z,x,s)=0</math> otherwise. Proof is in the appendix and is not complicated. Note that the above discusses proposals <math>x</math> only when <math>0<(x+s)/2\leq 1/2</math>, because otherwise the proposal passes without any bribes.

There is some discussion of the "truncated" nature of the bribe scheme. This refers to the fact that people whose ideal points are close to the status quo get zero.

Note: Highest bribes paid to legislators whose ideal points are close to the median, but close to his side of the median. The lobbyist does not bribe his close supporters, but rather his marginal supporters. Close supporters will vote for a motion even without bribes.

===Proposition 2===

Now suppose that the lobbyist has some agenda power, and wants to make a proposal <math>x</math> and then bribe the legislators to vote for his proposal. Snyder restricts attention to cases where the lobbyist's ideal point <math>L\leq 1/2</math>. Given this, the lobbyist's optimal bribes always satisfy Proposition 1.

Note that there are a few boring cases in which the lobbyist's strategy is quite dull. For example, if the status quo is equal to the lobbyist's ideal point (<math>s=L</math> thn the lobbyist does nothing. If <math>s\leq-L</math>, then the the lobbyist can propose <math>x_{D}=L</math>, offer no bribes and win the vote.

The more interesting case is when <math>-L<s<L</math>. Here, there exists an <math>s_{D}\in(0,L)</math> such that (i) if <math>-L<s<s_{D}</math>, then the lobbyist's optimal proposal <math>x_{D}^{\ast}</math> is unique, and satisfied <math>\max(s,-s,s_{D})<x_{D}^{\ast}<L</math>; and (ii) if <math>s\geq s_{D}</math>, then the lobbyist does nothing and s remains the policy outcome. In case (i), <math>\lim_{s\rightarrow s_{D}}x_{D}^{\ast}=s_{D}</math> and has comparative statics of <math>\partial x_{D}^{\ast}/\partial s<0, \partial x_{D}^{\ast}/\partial L>0</math> and <math>{\partial} x_{D}^{\ast}/\partial \alpha<0</math>.

====Rui's Notes ====
# Without bribes, if s<0, the lobbyist can get -s>0.
# If <math>s\geq 0</math>, can choose s.
# L never chooses <math>x<\max\{s,-s\}</math>.
# As the status quo s changes, there are three regions. Where <math>s_{D}<s<L, x=s</math>.
# Rui says we "get variation" based on changes on alpha and s.
# Risk aversion plays a big role here.
# Anchoring effect of s, median.
# This provides predictions.

Groseclose:
* Models suggest cut points in models with no vote buying and incomplete OR complete info.
* For models with vote buying, cut point appears in complete information but not incomplete information.

==Without Price Discrimination (2) ==

The paper continues to solve for equilibrium strategies in which the lobbyist does NOT know the individual legislator's ideal points and must offer all legislators the same bribe.

Rui said this was not as interesting.

Siebert VonGraevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket

2020-09-29T17:23:50Z

Maintenance script:

{{Article
|Has page=Siebert VonGraevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket
|Has title=Does Licensing Resolve Hold Up In The Patent Thicket
|Has author=Siebert VonGraevenitz
|Has year=2008
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}

*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Siebert, R. and VonGraevenitz, G. (2008), "Does Licensing Resolve Hold Up in the Patent Thicket?", Working Paper

@article{siebert2008does,
title={Does Licensing Resolve Hold Up in the Patent Thicket?},
author={Siebert, R. and VonGraevenitz, G.},
year={2008},
abstract={In a patent thicket licensing provides a mechanism to either avoid or resolve hold up. We study the choice between ex ante licensing to avoid hold up and ex post licensing to resolve it. Firms choice of licensing contract is studied in the context of a patent portfolio race. We show that high expected blocking leads to ex ante licensing while ex post licensing arises if expected blocking is low but realized blocking is high. Also, ex ante licensing reduces firms R&D incentives. A sample selection model of licensing is derived from the theoretical model. In this framework theoretical predictions on effects of blocking are tested with data from the semiconductor industry. We show that licensing helps firms to resolve blocking. However, licensing is not a cure all: it decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Using a treatment effects model we also confirm the prediction that ex ante licensing reduces the level of R&D investment.},
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==File(s)==

*[[Media:Siebert VonGraevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket.pdf|Download the PDF]]
*[[:Image:Siebert VonGraevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket.pdf|Repository record]]

==Abstract==

In a patent thicket licensing provides a mechanism to either avoid or resolve hold up. We study the choice between ex ante licensing to avoid hold up and ex post licensing to resolve it. Firms choice of licensing contract is studied in the context of a patent portfolio race. We show that high expected blocking leads to ex ante licensing while ex post licensing arises if expected blocking is low but realized blocking is high. Also, ex ante licensing reduces firms R&D incentives. A sample selection model of licensing is derived from the theoretical model. In this framework theoretical predictions on effects of blocking are tested with data from the semiconductor industry. We show that licensing helps firms to resolve blocking. However, licensing is not a cure all: it decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Using a treatment effects model we also confirm the prediction that ex ante licensing reduces the level of R&D investment.

Siebert VonGraevenitz (2010) - Jostling For Advantage Or Not

2020-09-29T17:23:50Z

Maintenance script:

{{Article
|Has page=Siebert VonGraevenitz (2010) - Jostling For Advantage Or Not
|Has title=Jostling For Advantage Or Not
|Has author=Siebert VonGraevenitz
|Has year=2010
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Siebert, R. and Von Graevenitz, G. (2010), "Jostling for advantage or not: Choosing between patent portfolio races and ex ante licensing", Journal of economic behavior & organization, Vol.73, No.2, pp.225--245

@article{siebert2010jostling,
title={Jostling for advantage or not: Choosing between patent portfolio races and ex ante licensing},
author={Siebert, R. and Von Graevenitz, G.},
journal={Journal of economic behavior \& organization},
volume={73},
number={2},
pages={225--245},
year={2010},
abstract={Licensing can be a solution for hold-up in patent thickets. In this paper we study whether licensing is an effective solution for hold-up. To do this we distinguish between ex ante and ex post licensing. A theoretical model shows that firms expectations of blocking in a patent thicket determine whether they license ex ante while ex post licensing arises if expected blocking was low but realized blocking turns out to be high. It can also be shown that ex ante licensing will allow firms to reduce their patenting efforts. A sample selection model of licensing is derived from the theoretical model. Applying this to data from the semiconductor industry we show that licensing does help firms to resolve blocking. However, the probability of observing licensing decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Licensing experience is also an important determinant of licensing. As expected ex ante licensing allows firms to reduce the level of patenting.},
discipline={Econ},
research_type={Theory, Empirical},
industry={},
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filename={Siebert VonGraevenitz (2010) - Jostling For Advantage Or Not.pdf}
}

==File(s)==

*[[Media:Siebert VonGraevenitz (2010) - Jostling For Advantage Or Not.pdf|Download the PDF]]
*[[:Image:Siebert VonGraevenitz (2010) - Jostling For Advantage Or Not.pdf|Repository record]]

==Abstract==

Licensing can be a solution for hold-up in patent thickets. In this paper we study whether licensing is an effective solution for hold-up. To do this we distinguish between ex ante and ex post licensing. A theoretical model shows that firms expectations of blocking in a patent thicket determine whether they license ex ante while ex post licensing arises if expected blocking was low but realized blocking turns out to be high. It can also be shown that ex ante licensing will allow firms to reduce their patenting efforts. A sample selection model of licensing is derived from the theoretical model. Applying this to data from the semiconductor industry we show that licensing does help firms to resolve blocking. However, the probability of observing licensing decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Licensing experience is also an important determinant of licensing. As expected ex ante licensing allows firms to reduce the level of patenting.

==Review==

===Theoretical Model===

Overview:
*The article models the decision to enter into ex ante or ex post licenses as a 3 stage game between two firms competing in product and technology markets:
**Stage 1: Choosing ex ante contracting,
**Stage 2: Choosing hazard rate of becoming technology leader (via R&D investment), and
**Stage 3: Entering an ex post license to divide surplus if no ex ante license was entered into.

Model predictions:
*Proposition 1: The profit incentive becomes stronger relative to the competitive threat if (i) blocking becomes greater and/or (ii) the degree of product market substitution becomes smaller for 2>r.
:''"An intuitive way of thinking about these results is that higher blocking reduces competitive pressure in the patent portfolio race, while higher degrees of product market substitution increase competitive pressure in the patent portfolio race."''
*Proposition 2: Ex ante and ex post licensing are of equal value when new patents are completely blocked.
:''"The intuition for identical values of ex ante and ex post licensing under full blocking is that this removes any threat that firms may emerge with asymmetric payoffs ex post and reduces the competitive threat to zero."''
*Proposition 3: Two firms will always prefer ex post licensing over ex ante licensing if the profit incentive is stronger than the competitive threat and blocking is not complete. If the competitive threat is stronger than the profit incentive ex ante licensing can be more valuable than ex post licensing.
*Proposition 4. If blocking is close to complete (B > B(E=0)) any increase in the degree of blocking reduces the difference between the expected value of ex post and ex ante licensing.

===Measures of thicket===

The article defines a measure of the extent that two firms are in a patent thicket with each other:
*The blocking intensity of a paired firms technology, as measured by technologically more similar innovations and higher cross-citations between patents held by a pair of firms. It is the interaction of two measures:
**Following Jaffee (1986), the uncentered correlation coefficient between the distribution in the number of each firms' patents across the 9 semiconductor industries; and
**Citation intenstity, defined as number of firm i's citations to firm j's patents relative to the total number of firm i citations.

===Sample===

476 observations on pairs of U.S. semiconductor firms that entered into a licensing agreement from 1989 to 1999:
*847 licensing contracts between firms is drawn from Thomson Financial (including date of agreement and firms involved) and excludes agreements resulting from litigation.
**Ex ante licensing rose, peaked in 1994 at 103 licenses, then fell, while ex post licensing is relatively flat.
*Market shares and revenues for 268 firms is drawn from Gartner Group data.
*firm-level semiconductor patent (and citations) information is drawn from NBER utility patent database restricted to 9 technology classes related to the semiconductor industry, (semiconductors: 257, 326, 438, 505; memory: 360, 365, 369, 711; and microcomponents 714).
**semiconductor patents rose from 4,063 in 1989 to 12,624 in 1999.

===Results===

Key results related to patent thickets:
*The elasticity of ex ante (vs ex post) licensing to blocking is -0.183 and significant at the 1% level, indicating an effect from overlapping patent rights.
*Although the blocking variable is endogenous (based on Wald tests of whether it is correlated with errors of the equation), lagged blocking provides a strong instrument, and instrumental variables specifications using the lagged blocking variable confirm the above results are robust.
:''[F]irms are more likely to enter into ex ante (ex post) licensing agreements if their patents block each other to a lower (greater) extent. This finding confirms Hypothesis 1 that lower levels of blocking will induce firms to license ex ante.''
*The elasticity of ex ante (vs ex post) licensing to the product market competition measure is 0.180 and significant at the 5% level.
:''"[Confirming] Hypothesis 2 that higher levels of product market substitution will induce firms to license ex ante. A one standard deviation increase in the degree of product market substitution raises the probability of ex ante licensing by 7.2%."''

Other results:
*Prior experience in ex ante licensing is significantly positively related to ex ante licensing, reflecting transaction costs.
*Ex ante licensing is less likely in larger (revenue) markets.
*Ex ante licensing is less likely for smaller firms.

===Social Welfare Consequences===
:''"The model we provide in this paper shows that licensing allows firms to overcome some serious problems arising from the patent thicket. Thus, ex ante licensing helps firms to reduce somewhat the very strong incentives to patent that can arise in patent thickets. This paper has focused on the determinants of licensing ex ante and ex post and we have found that ex ante licensing is preferred, as predicted, when competition in the patent thicket is most intense."''

===Dependent Variable and Model===
*The dependent variables indicates when a firm-pair enters into an ex ante license agreement (=1), as opposed to engaging in an ex post licensing agreement (=0)
*A probit model is estimated that includes features of the theoretical model:
**Degree of blocking ability (see above detail);
**Degree of product market competition, as measured by the uncentered correlation between firm pair's market shares in the 3 semiconductor technology areas (following Bloom 2005);
**firms' cost of licensing ex ante and ex post, as proxied by a count of previous ex ante or ex post licensing agreements signed with other firms.
*The model also includes market controls:
**semiconductor industry revenues;
**firms' average market shares in the semiconductor industry;
**firms' difference in market shares;
**firms' average semiconductor patent stocks;
**time trend.

Shue(2011)

2020-09-29T17:23:49Z

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===Hypothesis===
put hypothesis here

Siebert Graevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket

2020-09-29T17:23:49Z

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#REDIRECT [[Siebert VonGraevenitz (2008) - Does Licensing Resolve Hold Up In The Patent Thicket]]

Shepsle, K. (1979), Institutional Arrangements and Equilibrium in Multidimensional Voting Models

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Back to [[BPP Field Exam Papers 2012]]
==Paper's Motivation==

McKelvey's Chaos Thm: In a multidimensional spacial settings, unless points are distributed in a rare way (like radially symmetric), there is no Condorcet winner, and whoever controls the order of voting can make any point the final outcome.

In response, the author considers voting on one 'attribute' or dimension at a time.

==Model==

Consider a two-dimensional case. Any policy <math>z_{i}</math> is characterized by coordinates <math>(x_i, y_i)</math>.

==Result==

In first stage we vote on <math>x_{i}</math>. and obtain policy equal to median voters bliss point <math>x_{m}</math>. In second stage we vote on <math>y_i</math> and obtain policy equal to median voters bliss point <math>y_m</math>, so we obtain unique outcome <math>z=(x_m, y_m)</math>. Notice, that with this sequential voting, we do not get the median policy, but the median policy by dimension.

Shue (2011)

2020-09-29T17:23:48Z

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===Author's Hypothesis===
Executive social interactions are important determinants of managerial decision making and firm policies. The author tests to see if executive and firm outcomes are more similar among section peers than among class peers using data from HBS MBA students.
===How the Author Tested Hypothesis===
The author adds additional structure of a linear in means model. The model is specified as:
:<math>Y_{isc}=\theta\bar Y_{sc} + \phi\bar v_{sc} + \alpha_{sc} + \rho_{isc}</math>

The individual outcomes <math>Y_{isc}</math> either compensation or acquisitions are effected by both mean group outcomes <math>\bar Y_{sc}</math> and mean group fundamentals <math>\bar v_{sc}</math>

In the baseline model, he does not differentiate between the two types of peer effects in calculating the peer elasticity.

1.)The author creates a pairs distance metric. Hypothesis is that the mean absolute distance in outcomes between section peers should be less than the distance in outcomes between class peers. This is estimated using a 2 stage procedure as described on page 17. Notice that SE need to be adjusted as individuals appear multiple times in construction the pairs.

2.)The author also creates an excess variance metric. This tests the hypothesis that peer influences should also reduce variance within peer groups relative to across groups.

Trade offs between methods (1) and (2) Excess variance relies on familiar ANOVA model and results are easily comparable to previous work on peer effects. Also, estimation of elasticity does not require assumption of normality of individual fundamentals as in pairs distance measure. However, the pairs distance measure is more robust to outliers. because it relies on distance not distance squared as variance would.

3.) Finally, the author uses an "exogenous" shock or alumni reunions to test if peer effects in compensation and acquisitions are driven by contemporaneous interactions or past interactions.

4.) He also adds a robustness check in Pay for Friends Luck

===What Tests Achieved===
He finds strong evidence of peer effects in executive compensation and acquisitions. Under the linear in means model he estimates a lower bound of elasticity of individual outcomes of 10%-20%.

In the year following a reunion, section peers are around 15% more similar than class peers and the implied elasticity is 30%. Equality in the distance ratio in the year after reunions compared to other years can be rejected at the ten percent level for all outcomes except total compensation. Altogether, tests using alumni relations seem to show that peer effects in compensation and acquisition are driven by contemporaneous interactions. Pay for friends luck tests show that section peers are 6-10% more similar than class peers even when the peers compensation is due to lucky shocks in his industry.

===How might the tests be improved upon===
I am slightly worried about the exogenous nature of reunions. Reunions occur every 5 years, and while its likely that peers do not keep in touch outside of the reunion, I am worried about some other sort of convergence effect. Perhaps, executives keep fairly close tabs on their close friends who are from their section group, and if they have less acquisitions or something work to make this up in the lead up to a reunion, so its not so much the reunion as the mechanism, as a keeping up with the Johnson's effect.

===What is an alternate empirical strategy===

Shapiro (2001) - Navigating The Patent Thicket

2020-09-29T17:23:47Z

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{{Article
|Has page=Shapiro (2001) - Navigating The Patent Thicket
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|Has year=2001
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Shapiro, C. (2001), "Navigating the patent thicket: Cross licenses, patent pools, and standard setting", , pp.119--150

@incollection{shapiro2001navigating,
title={Navigating the patent thicket: Cross licenses, patent pools, and standard setting},
author={Shapiro, C.},
booktitle={Innovation Policy and the Economy, Volume 1},
pages={119--150},
year={2001},
abstract={},
discipline={Econ},
research_type={Discussion, Theory},
industry={},
thicket_stance={},
thicket_stance_extract={},
thicket_def={},
thicket_def_extract={},
tags={},
filename={Shapiro (2001) - Navigating The Patent Thicket.pdf}
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==File(s)==

*[[Media:Shapiro (2001) - Navigating The Patent Thicket.pdf|Download the PDF]]
*[[:Image:Shapiro (2001) - Navigating The Patent Thicket.pdf|Repository record]]

==Abstract==

In several key industries, including semiconductors, biotechnology, computer software, and the Internet, our patent system is creating a patent thicket: an overlapping set of patent rights requiring that those seeking to commercialize new technology obtain licenses from multiple patentees. The patent thicket is especially thorny when combined with the risk of holdup, namely the danger that new products will inadvertently infringe on patents issued after these products were designed. The need to navigate the patent thicket and holdup is especially pronounced in industries such as telecommunications and computing in which formal standard setting is a core part of bringing new technologies to market. Cross licenses and patent pools are two natural and effective methods used by market participants to cut through the patent thicket, but each involves some transaction costs. Antitrust law and enforcement, with its historical hostility to cooperation among horizontal rivals, can easily add to these transaction costs. Yet a few relatively simple principles, such as the desirability package licensing for complementary patents but not for substitute patents, can go a long way toward insuring that antitrust will help solve the problems caused by the patent thicket and by holdup rather than exacerbating them.

==Review==

===Patent Thickets===

In the abstract the paper defines a patent thicket as:
:''"an overlapping set of patent rights requiring that those seeking to commercialize new technology obtain licenses from multiple patentees."

It also makes it clear that hold-up is not part of the thicket problem in and of itself:
:''"The patent thicket is especially thorny when combined with the risk of holdup, namely the danger that new products will inadvertently infringe on patents issued after these products were designed."

The paper claims "our patent system is creating a patent thicket" in the following key industries:
*Semiconductors
*Biotechnology
*Computer Software
*The Internet (specifically e-commerce and business method patents)

The main text explicitly invokes two concepts:
*Cummulative innovation
*Blocking patents

Before providing the following definition of a patent thicket as:

:''"a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology. With cumulative innovation and multiple blocking patents, stronger patent rights can have the perverse effect of stifling, not encouraging, innovation."''

The paper then discusses '''excessively loose standards''' in the context of both e-commerce and business method patents seperate from the issue of thickets:

:''"But concerns about a patent thicket, and excessively loose standards at the PTO, are hardly confined to e-commerce and business method patents."''

It then introduces '''submarine patents''' as a later prerequisite for hold-up:

:''"So-called submarine patents, that take years if not decades to work their way through the Patent and Trademark Office, are another great source of anxiety especially for large manufacturing firms."''

The main text of the paper appears to conflate two concepts:
#The requirement for a patented complementary input during commercialization
#(Presumably) inadvertant infringement of patented prior art leading to hold-up

Source:
:''"The vast number of patents currently being issued creates a very real danger that a single product or service will infringe on many patents. Worse yet, many patents cover products or processes already being widely used when the patent is issued, making it harder for the companies actually building businesses and manufacturing products to invent around these patents. Add in the fact that a patent holder can seek injunctive relief, that is, can threaten to shut down the operations of the infringing company, and the possibility for holdup becomes all too real."''

And redefines patent thickets in terms of infringement:

:''"This paper takes as given the flood of patents currently being issued by the PTO, and assumes that these patents are indeed creating a patent thicket in the sense that many new products would likely infringe on multiple patents."''

However, particularly given the clean cut seperation of patent thickets and hold-up in the abstract, this redefinition may not have been intentional.

:''"The generic problem inherent in the patent thicket is well understood as a matter of economic theory, at least in its static version. Consider, for example, a company seeking to manufacture a new graphics chip... Suppose that the company's preferred design for this chip is likely to infringe on a number of patents; the process manufacturing methods used to actually produce the chip infringe on a number of additional patents. In order to produce the chip as designed, the company needs to obtain licenses from a number, call it N, of separate rights holders."''

Thus, no actual infrigement takes place. Rather the product at issue (which itself may be patented) requires a large number of patented complementary inputs, which are diversely-held by N rights holders, in order to be commercialized. With out the necessary licenses, commercialization (and so infringement) can not take place, and with the necessary licenses there is no infrigement.

Thickets do not involve hold-up, but rather embody a Cournot complements problem. This leads to three potential welfare losses:
#'Double marginalization' on input costs leading to deadweight-loss and inefficiently low use
#The possibility of a loss of welfare from the failure to introduce new products: ''...these burdens may cause certain products not to be produced at all, if that production is subject to economies of scale.''
#A reduction in the likelihood of future innovation: ''new product design and development, and thus can easily be a drag on innovation and commercialization of new technologies.''

However, the paper implicitly also mentions the gains from the increased return to each patent-holder, which can compensate for the cost of R&D for the patent and other failed research projects:

:''"So, unless the patent in question is quite broad, one might think that any burden on the manufacturer would be modest, and arguably the very return we wish to provide to the patentee as a reward for innovation."''

The following welfare consequences are not discussed:
#The gains from return to specialization in the economy
#The welfare effect of any race for the patents
#The possible increase in the likelihood of future innovation arising from the 'size of the prize' for creating a complementary input

The paper notes that there are private mechnanisms in place to mitigate the problems associated with patent thickets based upon cooperation, including:

#Cross-licensing
#Patent Pools and Package Licenses
#Cooperative Standard Setting
#Settlements of Patent Disputes
##Acquisitions
##Cash payments for exit

Each of these is discussed in turn.

===Model===

<math>N\;</math> firms own patents on complementary inputs, with costs of producing a unit of <math>c_i\;</math>, charging a price <math>p_i\;</math>. The price of the product itself will be <math>p\;</math>, and assembling a unit will cost <math>\alpha\;</math>.

Competition at the assembly level ensures that:

:<math>p=\alpha + \sum_i p_i\;</math>

Demand for the product is <math>D(p)\;</math>, and the price elasticity of demand is therefore:

:<math>\epsilon = - \frac{D'(p)\cdot p}{ D(p)}\;</math>

The <math>N\;</math> firms set their component prices independently and non-cooperatively. That is the model assumes that each firm is a monopolist so it sets price (quantity) to maximize profits.

:<math>\pi_i = D(p)(p_i-c)\;</math>

Therefore the FOC is:

:<math>\frac{d \pi_i}{d p_i} = D(p) + D'(p)(p_i - c_i) = 0\;</math>

Summing across all <math>i\;</math>:

:<math>D(p)N + D'(p)\sum_i(p_i - c_i) = 0\;</math>

:<math>\therefore \frac{\sum_i(p_i - c_i)}{p} = \frac{D(p) N}{p D'(p)}\;</math>

Subbing in <math>\sum_i p_i = p - \alpha\;</math>:

:<math>\frac{p - \overbrace{\alpha - \sum_i c_i}^{c}}{p} = \frac{N}{\epsilon}\;</math>

With a single firm, <math>N=1\;</math>, the Lerner index is <math>\frac{1}{\epsilon}\;</math>, so with <math>N\;</math> firms the mark-up is <math>N\;</math> times the standard monopoly mark-up.

===Hold-up===

Aside from the complements problem, the paper also explicitly addresses a hold-up problem. A careful read of the paper suggests that this should not be included in the problem of patent thickets, but instead that is a seperate, albeit related, issue.

In the context of the how patents generally might stiffle innovation (outside of the ''"romantic view" that patent provide rewards for innovation to patentees), the paper focuses on three core issues:
#Patents that are too broad or improperly granted
#The cummulative effect of small taxes
#Timing issues: no possibility of invent around with submarine patents, and thus hold-up

Source:
:''"In short, with multiple overlapping patents, and under a system in which patent applications are secret and patents slow to issue (relative to the speed of new product introduction), we have a volatile mix of two powerful types of transaction costs that can burden innovation: (1) the complements problem, the solution of which requires coordination, perhaps large scale coordination; and (2) the holdup problem, which is quite resistant to solution in the absence of either (a) better information at an earlier stage about patents likely to issue, and/or (b) the ability of interested parties to challenge patents at the PTO before they have issued and are given some presumption of validity by the Courts."''

===Anti-trust Responses===

The core of the paper considers anti-trust's responses to the mechanisms used to address thickets and hold-up:

:''...I consider whether antitrust limits are contributing to the problems caused by the patent system. Unfortunately, antitrust enforcement and antitrust law have a deep rooted suspicion of cooperative activities involving direct competitors. But such cooperation1 in one form or another, may be precisely what is required to navigate the patent thicket. As a result, unless antitrust law and enforcement are quite sensitive to the problems posed by the patent thicket, they can have the perverse effect of slowing down the commercialization of new discoveries and ultimately retarding innovation, precisely the opposite of the intent of both the patent laws and the antitrust laws."

The paper suggests that there are two possible anti-trust approaches:
#''"...ask whether the agreement in question leads to more competition than would occur without that agreement."'' (Adopted in Antitrust Guidelines for the Licensing of Intellectual Property, §3.1)
#''"...ask whether the agreement in question is the most competitive agreement possible. Put differently, one could ask whether a given agreement is the least restrictive alternative that is workable in the sense of solving the legitimate business problem faced, such as unbiocking patent positions."''

The paper then considers, and provides examples, of the role of anti-trust in:
*Cross Licensing
**Intel's Policy of "IP for IP"
*Patent Pools
**MPEG case
**DVD case
**Summit Technology, Inc. and VisX, Inc.
*Cooperative Standard Setting
**Addamax Corporation v. Open Software Foundation, Inc.
**Dell Computer and the VESA VL-Bus Standard
**Motorola and the IT1I V34 Modem Standard
*Settlements of Patent Disputes
**Pillar Point Partners (Summit Technology, Inc. and VisX, Inc.)
**Boston Scientific and CVIS

===Conclusion===

====Patent thickets and Hold-up====

In the conclusion the paper identifies "significant transaction costs for those seeking to commercialize new technology" based on three things as problematic:
#Multiple patents
#Overlapping rights
#Holdup problems

Source:
:''"Our current patent system is causing a potentially dangerous situation in several fields, including biotechnology, semiconductors, computer software, and e-commerce, in which a would-be entrepreneur or innovator may face a barrage of infringement actions that it must overcome to bring its product or service to market. In other words, we are in danger of creating significant transaction costs for those seeking to commercialize new technology based on multiple patents, overlapping rights, and holdup problems. Under these circumstances, it is fair to ask whether the pendulum has swung too far in the direction of strong patent rights, ranging from the standards used at the Patent and Trademark Office for approving patent applications, to the secrecy of such app1ication, to the presumption afforded by the courts to patent validity to the right of patent holders to seek injunctive relief by insisting that infringing firms cease production of the offending products."''

However, the word 'overlapping' (as in overlapping patents) is only used 4 times in the text (outside of 2 uses in section headers). Two of these uses are in the thicket definitions from the abstract and the main text. Another is in when distinguishing thickets from hold-up ("with multiple overlapping patents, and under a system in which patent applications are secret and patents slow to issue..., we have a volatile mix of two powerful types of transaction costs that can burden innovation"), and the last in the conclusion quote above ("we are in danger of creating significant transaction costs for those seeking to commercialize new technology based on multiple patents, overlapping rights, and holdup problems."). Thus we should probably conclude that Shapiro meant no distinction between overlapping patents and patented products that themselves required many patented complementary inputs.

====Anti-trust====

With regards to anti-trust, the paper concludes by suggesting that the FTC exhibit more restraint and allow more cooperation:

:''"So far, the Department of Justice has displayed a keen understanding of the need for those holding complementary rights to coordinate in the licensing of those rights, but the Federal Trade Commission has exhibited less restraint, and arguably is making it more difficult for firms to engage in cross licenses, to offer package licenses, or to form procompetitive patent pools."''

Sheen (2009) - Do Public And Private Firms Behave Differently An Examination Of Investment In The Chemical Industry

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*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Privately_versus_Publicly_Held_Companies | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Sheen, Albert (2009), "Do public and private firms behave differently? An examination of investment in the chemical industry", Unpublished working paper, UCLA. [http://www.edegan.com/pdfs/Sheen%20(2009)%20-%20Do%20Public%20And%20Private%20Firms%20Behave%20Differently%20An%20Examination%20Of%20Investment%20In%20The%20Chemical%20Industry.pdf pdf]

==Abstract==

Using a comprehensive panel dataset of U.S. production capacity by firm in seven commodity chemical industries, I compare the investment behavior of public and private firms when presented with near identical project opportunities. I find that private firms invest differently, and more efficiently, than public firms. Specifically, private firms are more likely than public firms to increase capacity prior to a positive demand shock (an increase in price and quantity) and less likely to increase capacity before a negative demand shock. This result holds when considering only a subsample of firms that change incorporation status. The private firm investment advantage is particularly strong among leveraged buyouts and is not explained by the level of chemical division diversification. These findings are consistent with theories in which public firms are subject to greater agency concerns, leading to sub-optimal investment relative to private firms.

Shaked Sutton (1982) - Relaxing Price Competition Through Product Differentiation

2020-09-29T17:23:46Z

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{{Article
|Has page=Shaked Sutton (1982) - Relaxing Price Competition Through Product Differentiation
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*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

*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]

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title={Relaxing price competition through product differentiation},
author={Shaked, A. and Sutton, J.},
journal={The Review of Economic Studies},
pages={3--13},
year={1982},
publisher={JSTOR}
}

==Abstract==

The notion of a Perfect Equilibrium in a multi-stage game is used to characterize industry equilibrium under Monopolistic Competition, where products are differentiated by quality. Central to the problem of providing adequate foundations for the analysis of monopolistic competition, is the problem of describing market equilibria in which firms choose both the specification of their respective products, and their prices. The present paper is concerned with a very particular model of such a market equilibrium. In this equilibrium, exactly two potential entrants will choose to enter the industry; they will choose to produce differentiated products; and both will make positive profits.

==The Model==

The game has three stages:
#Entry Decisions by <math>n\,</math> firms
#Entrants choose product quality <math>q \in [q',q'']\,</math>
#Price Competition

The set up is as follows:
*Unit mass of consumers with type <math>t \in [t', t'']\,</math> where <math>t'' = t'+1\,</math>
*Unit demand. A consumer who purchases from firm <math>i\,</math> gets <math>u(t) = t\cdot q_i - p_i\,</math>
*<math>mc=0\,</math>
*Cost of entry <math>\epsilon\,</math>

Assumptions:
#<math>t''>2t'\,</math>: There is enough heterogeneity to prevent one firm from capturing the whole market
#For two firms with qualities <math>q_1 < q_2: t'q_1 > \frac{(t''-2t')\Delta q_2}{3}\,</math>, where <math>\Delta q_2 = q_2=q_1\,</math>. This prevents unserved customers.
#<math>t'' < 4t'\,</math> there is not excessive heterogeneity. This limits the number of firms that can survive.

===Stages and Possibilities===

Entry Quality Prices and Profits
----------------------------------------------------

2 firms Same <math>p=0,\; \pi=0\,</math>
'''2 firms Different <math>0<p_1<p_2,\; 0<\pi_1<\pi_2\,</math>'''
3 or more firms Same <math>p=0,\; \pi=0\,</math>
3 or more firms Different <math>0<p_{n-1}<p_n,\; 0<\pi_1<\pi_2, \pi_{i\ne1,2} = 0\,</math>
3 or more firms Top 2 Same <math>0=p_{n-1}=p_n,\; \pi = 0\,</math>

There are two steps to answering which are equilibria:
#Lemma 1 - with unequal qualities on the top two products make money
#Proposition 2 - in any NE of the quality choice subgame, profits are zero

From the above it can be shown that more than two entrants is not an equilbrium with <math>\epsilon > 0\,</math>. Furthermore, they will differentiate their products (as shown by proposition 1 and lemma 2). So only the bold row is an equilibrium.

===Price competition and Lemma 1===

Suppose there are <math>n\,</math> differentiated firms with qualities <math>q_1,\ldots,q_n\,</math>. Only the top two will have positive profits.

A consumer indifferent between consuming goods <math>k\,</math> and <math>k-1\,</math> has equal utilities:

:<math>t_k\cdot q_{k-1} - p_{k-1} = t_k\cdot q_{k} - p_{k} \implies t_k = \frac{p_k-p_{k-1}}{q_k-q_{k-1}} = \frac{\Delta p_k}{\Delta q_k}\,</math>

====Lemma 1====

The objective function for firm <math>k\,</math> is:

:<math>\pi_k = (t_{k+1}-t_k)\cdot p_k = (\frac{\Delta p_{k+1}}{\Delta q_{k+1}} - \frac{\Delta p_{k}}{\Delta q_{k}})\cdot p_k\,</math>

Likewise for firm <math>n\,</math>:

:<math>\pi_n = (t''-t_n)\cdot p_n = (\frac{t'' - \Delta p_{n}}{\Delta q_{n}})\cdot p_n\,</math>

The respective first order conditions wrt <math>p_n\,</math> give (subbing back in <math>t\,</math>'s):

:<math>-\frac{p_k}{\Delta q_{k+1}} - \frac{p_k}{\Delta q_{k}} +t_{k+1} - t_{k} = t_{k+1} - \frac{p_k}{\Delta q_{k+1}} - \frac{p_{k-1}}{\Delta q_{k}} - 2t_k = 0\,</math>

:<math>-\frac{p_n}{\Delta q_n} + t'' -t_n = t''-2t_n -\frac{p_{n-1}}{\Delta q_n} = 0\,</math>

From the first FOC above (for <math>k\,</math>), if firms have positive profits and <math>p>0\,</math> then it must be the case that <math>t_{k-1} > 2t_k\,</math> and the case that <math>t'' > 2t_n\,</math>.

We have therefore shown that <math>t'' > 2t_n > 4t_{n-1}\,</math>, but for <math>n\ge 3 t''>4t'\,</math> which violates assumption 3. The customer that is indiffent between buying from firms 1 and 2 is poorer than the poorest customer, so only firms 1 and 2 get positive market shares.

A limitation on the heterogeneity limits the number of firms in equilibrium even with free entry, but active firms make positive profits. This is in contrast to spatial models (like the circular city) where as fixed costs go to 0 the number of firms goes to infinity and price approaches (true) marginal cost (i.e. transport costs go to zero).

===Proposition 2===

With more than 2 entrants, at least two qualities are <math>q''\,</math> and <math>\pi = 0\,</math> for all firms.

The explanation is as follows:
#At least one quality is <math>q''\,</math> (easily proved by contradiction, as a firm could choose <math>q''\,</math> and suddenly make non-zero profits)
#At least a second firm will pick <math>q''\,</math> too, as only the top two qualities make money, picking anything else would yield zero profits.
#Bertrand competition results at <math>q''\,</math>, and <math>q''\,</math> makes zero profits.

===Proposition 3===

Under assumptions 1-3, for any <math>\epsilon\,</math> exactly two firms enter and choose unequal qualities to make positive profits.

===Proposition 1 and Lemma 2===

Solving by backwards induction.

In the third stage take qualities <math>q' \le q_1 \le q_2 \le q''\,</math> as given.

Firm 2 maximizes:

:<math>\max_{p_2} (t'' - t_2)\cdot p_2 = (t'' - \frac{\Delta p_2}{\Delta q_2})\cdot p_2\,</math>

:<math>\therefore p_2 = \frac{t'' \Delta q_2 +p_1}{2}\,</math>

Likewise firm 1 maximizes:

:<math>\max_{p_1} (t_2 - t')\cdot p_1 = (\frac{\Delta p_2}{\Delta q_2} - t')\cdot p_2\,</math>

:<math>\therefore p_1 = \frac{p_2 - t' \Delta q_2}{2}\,</math>

Solving together gives:

:<math>p_2 = \frac{(2t'' - t')\Delta q_2}{3} \,</math>

:<math>p_1 = \frac{(t'' - 2t')\Delta q_2}{3} \,</math>

By assumption 1, <math>p_1 >0\,</math>. By assumption 2 there are no unserved customers.

Given these prices:

:<math>t_2 = \frac{(p_2 - p_1)}{\Delta q_2} = \frac{t''+t'}{3}\,</math>

:<math>D_1 = t_2 - t_' = \frac{t''-2t'}{3}\,</math>

:<math>D_2 = t_'' - t_2 = \frac{2t''-t'}{3}\,</math>

:<math>\pi_1 = D_1 p_1 > 0\,</math>

:<math>\pi_2 = D_2 p_2 > \pi_2\,</math>

Now firms choose qualities!

Clearly both would like to pick the high quality, unless it has already been picked, in which case they want to pick the lowest possible quality. Quality choice is therefore a coordination game with lopsided payoffs. Presumably perturbation to timing will allow one to pick first.

==Conclusion==

Vertical differentiation is not isomorphic to horizontal differentiation. In horizontal differentiation, competitors with two equal prices have local market power. Here lower quality firms are driven out, and only high quality firms exploit some market power. However, quality and price competition with many firms will be too fierce, so even under free entry conditions we will get a finite number of firms, quality differentiation and positive profits.

Shane Stuart (2002) - Organizational Endowments And The Performance Of University Startups

2020-09-29T17:23:46Z

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{{Article
|Has page=Shane Stuart (2002) - Organizational Endowments And The Performance Of University Startups
|Has title=Organizational Endowments And The Performance Of University Startups
|Has author=Shane Stuart
|Has year=2002
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Sociological_Approaches_to_Entrepreneurship | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Shane, Scott, and Toby E. Stuart (2002), "Organizational endowments and the performance of university startups", Management Science, 48: 154-170 [http://www.edegan.com/pdfs/Shane%20Stuart%20(2002)%20-%20Organizational%20Endowments%20And%20The%20Performance%20Of%20University%20Startups.pdf pdf]

==Abstract==

The question of how initial resource endowments-the stocks of resources that entrprpeneurs contribute to their new ventures at the time of founding-affect organizational life chances is one of significant interest in organizational ecology, evolutionary theory, and entrepreneurship research. Using data on the life histories of all 134 firms founded to exploit MIT-assigned inventions during the 1980-1996 period, the study analyzes how resource endowments affect the likelihood of three critical outcomes: that new ventures attract venture capital financing, experience initial public offerings, and fail. Our analysis focuses on the role of founders' social capital as a determinant of these outcomes. Event history analyses show that new ventures with founders having direct and indirect relationships with venture investors are most likely to receive venture funding and are less likely to fail. In turn, receiving venture funding is the single most important determinant of the likelihood of IPO. We conclude that the social capital of company founders represents an important endowment for early-stage organizations.

Samila Sorenson (2011) - Venture Capital Entrepreneurship And Economic Growth

2020-09-29T17:23:45Z

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{{Article
|Has page=Samila Sorenson (2011) - Venture Capital Entrepreneurship And Economic Growth
|Has title=Venture Capital Entrepreneurship And Economic Growth
|Has author=Samila Sorenson
|Has year=2011
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Venture_Capital_Financing | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Samila, Sampsa and Olav Sorenson (2011), "Venture Capital, Entrepreneurship, and Economic Growth", Review of Economics and Statistics, 93: 338-349 [http://www.edegan.com/pdfs/Samila%20Sorenson%20(2011)%20-%20Venture%20Capital%20Entrepreneurship%20And%20Economic%20Growth.pdf pdf]

==Abstract==

Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-howto their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects.

Schacht (2006) - Patent Reform Issues In The Biomedical And Software Industries

2020-09-29T17:23:45Z

Maintenance script:

{{Article
|Has page=Schacht (2006) - Patent Reform Issues In The Biomedical And Software Industries
|Has title=Patent Reform Issues In The Biomedical And Software Industries
|Has author=Schacht
|Has year=2006
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Schacht, W.H. (2006), "Patent Reform: Issues in the Biomedical and Software Industries", Working Paper

@book{schacht2006patent,
title={Patent Reform: Issues in the Biomedical and Software Industries},
author={Schacht, W.H.},
year={2006},
publisher={Congressional Research Service (7 April 2006), available at: http://sharp.sefora.org/wp-content/uploads/2007/12/rl33367. pdf},
abstract={},
discipline={Policy Report},
research_type={Discussion, Commentary},
industry={Biomedical, Software},
tags={Patent Reform, existence of thickets},
filename={Schacht (2006) - Patent Reform Issues In The Biomedical And Software Industries.pdf}
}

==File(s)==

*[[Media:Schacht (2006) - Patent Reform Issues In The Biomedical And Software Industries.pdf|Download the PDF]]
*[[:Image:Schacht (2006) - Patent Reform Issues In The Biomedical And Software Industries.pdf|Repository record]]

==Abstract==
Congress currently is considering reform of the existing patent system. This interest in patent policy reflects a recognition of the increasing importance of intellectual property to U.S. innovation. Patent ownership is perceived as an incentive to the technological advancement that leads to economic growth. As such, the number of patent applications and grants has grown significantly, as have the type and breadth of inventions that can be patented.

Along with the expansion in the number and range of patents, there are growing concerns over whether the current system is working efficiently and effectively. Several recent studies recommend patent reform. Other experts maintain that major alterations in existing law are unnecessary and that, while not perfect, the patent process can, and is, adapting to technological progress. Thus far in the 109th Congress, two bills, H.R. 2795 and H.R. 5096, have been introduced which, if enacted, would make significant alterations in current patent law.

At the present time, the patent laws provide a system under which all inventions are subject to the same requirements of patentability regardless of the technical field in which they arose. However, inventors and innovative companies in different industries tend not to hold identical views concerning the importance of patents, reflecting varying experiences with the patent system. Innovators in biomedical industries tend to see patent protection as critically important as a way to prohibit competitors from appropriating the results of a company’s research and development efforts. Typically only a few, often one or two, patents cover a particular drug. In contrast, the nature of software development is such that inventions often are cumulative and new products generally embody numerous patentable inventions. As a result, it may be expected that distinct industries might react differently to the various patent reform proposals currently under consideration by Congress.
==Review==
===Definition of patent thicket===
:''"Concerns have been expressed in the academic community that the propensity to patent and the extensive use of cross licensing has resulted in a 'patent thicket' where ownership of patent title is used to block others from innovating."''

===Discussion===
The report reviews of the existing literature on patent law and patenting more generally for the Biomedical and Software industries for the U.S. Congress.
*There are two policy goals of the patent system: incentivize invention and encourage inventors to make technical information public.
*Every industry is different in how it is affected by the patent system, and experts differ in opinion about the positive and negative aspects of the patent system.

===Social Welfare Consequences===
: ''"In industries where innovation is sequential and complementary, as with software and computers, some experts argue that strong patents interfere with the innovation process.''"
===Policy Advocated in Paper===
: ''"At the present time, the patent laws provide a system under which all inventions are subject to the same requirements of patentability regardless of the technical field in which they arose… As a result, it may be expected that distinct industries might react differently to the various patent reform proposals presently under consideration by Congress.''"

Ruef (2002) - Strong Ties Weak Ties And Islands Strutural And Cultural Predictors Of Organizational Innovation

2020-09-29T17:23:44Z

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{{Article
|Has page=Ruef (2002) - Strong Ties Weak Ties And Islands Strutural And Cultural Predictors Of Organizational Innovation
|Has title=Strong Ties Weak Ties And Islands Strutural And Cultural Predictors Of Organizational Innovation
|Has author=Ruef
|Has year=2002
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
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*This page is referenced in [[Entrepreneurship_Research_Boot_Camp#Sociological_Approaches_to_Entrepreneurship | The NBER Entrepreneurship Research Boot Camp Page]]

==Reference(s)==

*Ruef, Martin (2002), "Strong ties, weak ties and islands: Strutural and cultural predictors of organizational innovation", Industrial and Corporate Change, 11: 427-449 [http://www.edegan.com/pdfs/Ruef%20(2002)%20-%20Strong%20Ties%20Weak%20Ties%20And%20Islands%20Strutural%20And%20Cultural%20Predictors%20Of%20Organizational%20Innovation.pdf pdf]

==Abstract==

No abstract available.

Salop (1979) - Monopolistic Competition With Outside Goods

2020-09-29T17:23:44Z

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{{Article
|Has page=Salop (1979) - Monopolistic Competition With Outside Goods
|Has title=Monopolistic Competition With Outside Goods
|Has author=Salop
|Has year=1979
|In journal=
|In volume=
|In number=
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|Has publisher=
}}
*This page is referenced in [[BPP Field Exam Papers]]

==Reference(s)==

*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]

@article{salop1979monopolistic,
title={Monopolistic competition with outside goods},
author={Salop, S.C.},
journal={The Bell Journal of Economics},
pages={141--156},
year={1979},
publisher={JSTOR}
}

==Abstract==

The Chamberlinian monopolistically competitive equilibrium has been explored and extended in a number of recent papers. These analyses have paid only cursory attention to the existence of an industry outside the Chamberlinian group. In this article I analyze a model of spatial competition in which a second commodity is explicitly treated. In this two-industry economy, a zero-profit equilibrium with symmetrically located firms may exhibit rather strange properties. First, demand curves are kinked, although firms make "Nash" conjectures. If equilibrium lies at the kink, the effects of parameter changes are perverse. In the short run, prices are rigid in the face of small cost changes. In the long run, increases in costs lower equilibrium prices. Increases in market size raise prices. The welfare properties are also perverse at a kinked equilibrium.

==Summary==

The model exhibits kinked demand curves, but then so can the Hotelling model. However, here it is possible to study symmetric equilibria and so equilibrium brand differentiation.

==The Model==

The model is set up as follows:
*A unit mass of customers is uniformly located around a circumference 1 circle
*<math>mc=c\,</math>
*Fixed cost of entry = <math>f\,</math>
*Unit demand for customers with valuation <math>v\,</math>
*<math>n\,</math> firms
*linear transport costs <math>t\,</math>
*Two stage game:
**Decide whether to pay <math>f\,</math> and enter
**Compete in prices

The solution concept is backwards induction, with symmetric equilibria. Note that '''nothing gaurantees that demand is well behaved'''.

A distance <math>x\,</math> from firm <math>i\,</math>, the percieved total cost is:

<math>p_i + xt\,</math>

From firm <math>j\,</math>:

<math>p_j+ (\frac{1}{n} -x ) t\,</math>

===Solving for the inverse demand function===

A rival is located <math>{1}{n}\,</math> away and charges <math>p_j\,</math>. A customer <math>k\,</math> is indifferent between buying from <math>j\,</math> and not buying at all:

<math>v - p_j - (\frac{1}{n} -k)t = 0\,</math>

All customers closer than <math>k\,</math> are 'captive'.

Charging <math>p_i\,</math> only gets customers exactly at <math>i\,</math>'s location - lowering price towards <math>c\,</math> (note that prices don't get there even under perfect competition because of transportation costs) gets more customers. A customer at <math>x\,</math> is indifferent between buying and not buying from <math>i\,</math>:

:<math>v-p_i-tx = 0 \quad \therefore x = \frac{v-p_i}{t}\,</math>

Total demand is twice this:

:<math>q_i^m = 2 \cdot \frac{v-p_i}{t} \quad \therefore p_i^m = v - \frac{t}{2} \cdot q_i\,</math>

Note the slope of the inverse demand function is <math>- \frac{t}{2}\,</math>.

Lowering price to <math>p_i = v-tk\,</math> gets the whole captive market and starts competiting for <math>j\,</math>'s customers. Further decreases steal customers.

An indifferent consumer at <math>x > k\,</math> gives:

:<math>\underbrace{p_i + tx}_{\mbox{buy from i}} = \underbrace{p_j + t(\frac{1}{n} -x)}_{\mbox{buy from j}}\,</math>

:<math>\therefore x = \frac{p_j - p_i + \frac{t}{n}}{2t}\,</math>

but demand is two sided, so <math>q_i^c = 2x\,</math>.

Therefore under perfect competition: <math>p_i^c = tp_j +\frac{t}{n} - t q_i^c\,</math>

Which has a slope of <math>-t\,</math>, therefore the demand curve is kinked where competition meets monopoly at <math>p_i = v - tk\,</math> (monopoly to the left of the kink, competition to the right, naturally).

===Finding the equilibrium===

The equilibrium is where the isoprofit hyperbola is tandent to the demand curve. The isoprofit hyperbola is:

:<math>d \pi = dq_i(p_i-c) + q_i dp_i\,</math>

(according to the notes, but <math>\frac{d\pi}{dq_i} = \frac{dq_i}{dq_i} (p - c) + q_i \frac{dp_i}{dq_i}\,</math>).

The slope of this is <math>\frac{dp_i}{dq_i}\,</math>, which equals:

:<math>\frac{dp_i}{dq_q} = -\frac{p_i - c}{q_i}\,</math>

Therefore:
*If <math>c\,</math> is low and <math>t\,</math> is high, the isoprofit curves are steep relative to demand, and there is more likely to be a competitive equilibrium
*There is a range of values for which equilibrium lies in the kink and the comparative statics are perverse
**For instance a small increase in <math>c\,</math> has no short run effect - but with free entry and zero profits, it must result in loses and so exits. This lengthens the distance to competitors and increases the ran of the monopolistic part of the demand function (move the kink right), which leads to '''lower''' prices.

====Solving the competitive equilibrium by backward induction====

In the 2nd stage demand per firm is:

:<math>q_i^c = \frac{p_j - p_i + \frac{t}{n}}{t}\,</math>

:<math>\pi_i^c = (p-c)\cdot \left (\frac{p_j - p_i + \frac{t}{n}}{t}\right) -f\,</math>

FOC assuming symmetry gives:

:<math>p_* = \frac{t}{n} + c\,</math>

:<math>q^* = \frac{1}{n}\,</math>

In the first stage, firms enter if they'll make (weakly) positive profits:

:<math>(p^* - c)\cdot q^* - f = 0\,</math>

:<math>( \frac{t}{n} + c -c) \cdot \frac{1}{n} = f\,</math>

And the number of entrants must satisfy a zero profit condition:

:<math>n^* = \sqrt{\frac{t}{f}}\,</math>

Therefore equilibrium prices are:

:<math>p_* = \frac{t}{n^*} + c = p_* = \frac{t}{\sqrt{\frac{t}{f}}} + c = c + \sqrt{tf}\,</math>

===Welfare comparison===

Is <math>n^*\,</math> the right number of firms? To maximize welfare:

:<math>n \cdot \underbrace{\frac{1}{n}(v-c)}_{\mbox{Surplus from a firm}} - \underbrace{\frac{t}{4n}}_{\mbox{Transport Costs}} - \underbrace{nf}_{\mbox{Entry}} = v - c -\frac{t}{4n} - nf\,</math>

Taking the FOC wrt <math>n\,</math> gives:

:<math>n = \sqrt{\frac{t}{4f}} = \frac{1}{2}\cdot n^*\,</math>

Therefore the market generates twices as much entry as is efficient. Thus there is too much variety, because each entrant captures part of the market that would have been served by others. Private returns are higher than entry costs, but much of the private return comes from "business stealing" and does not contribute to welfare.

Reitzig (2004) - The Private Values Of Thickets And Fences

2020-09-29T17:23:43Z

Maintenance script:

{{Article
|Has page=Reitzig (2004) - The Private Values Of Thickets And Fences
|Has title=The Private Values Of Thickets And Fences
|Has author=Reitzig
|Has year=2004
|In journal=
|In volume=
|In number=
|Has pages=
|Has publisher=
}}
*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Reitzig, M. (2004), "The private values of thickets and fences: towards an updated picture of the use of patents across industries", Economics of Innovation and New Technology, Vol.13, No.5, pp.457--476

@article{reitzig2004private,
title={The private values of thickets and fences: towards an updated picture of the use of patents across industries},
author={Reitzig, M.},
journal={Economics of Innovation and New Technology},
volume={13},
number={5},
pages={457--476},
year={2004},
abstract={On the basis of a novel data set of 612 European patents and related inventions from five different industries, it is shown that multiple patents per invention are filed in both discrete and complex technologies. Multivariate analysis of the data suggests that in selected discrete technologies, patent fences may serve to exclude competitors whereas in complex technologies, thickets represent exchange forums for complementary technology. The results expand on traditional views of profitable patent exploitation across industries and elaborate on the most recent findings by Cohen et al. (Cohen, W.M., Nelson, R.R. and Walsh, J.P. (2000) Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or not). Cambridge, MA: NBER.) The analysis suggests that different legislative issues arise from multiple patenting per innovation in complex and discrete technologies depending on the degree of technological complementarity. The results have unexpected policy implications in that they illustrate how patentees could eliminate competition in the form of substitute technologies through fencing. They have wide managerial implications regarding the valuation of patent portfolios and the design of corporate IP strategies.},
discipline={Econ},
research_type={Empirical},
industry={},
thicket_stance={},
thicket_stance_extract={},
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tags={},
filename={Reitzig (2004) - The Private Values Of Thickets And Fences.pdf}
}

==File(s)==

*[[Media:Reitzig (2004) - The Private Values Of Thickets And Fences.pdf|Download the PDF]]
*[[:Image:Reitzig (2004) - The Private Values Of Thickets And Fences.pdf|Repository record]]

==Abstract==

On the basis of a novel data set of 612 European patents and related inventions from five different industries, it is shown that multiple patents per invention are filed in both discrete and complex technologies. Multivariate analysis of the data suggests that in selected discrete technologies, patent fences may serve to exclude competitors whereas in complex technologies, thickets represent exchange forums for complementary technology. The results expand on traditional views of profitable patent exploitation across industries and elaborate on the most recent findings by Cohen et al. (Cohen, W.M., Nelson, R.R. and Walsh, J.P. (2000) Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or not). Cambridge, MA: NBER.) The analysis suggests that different legislative issues arise from multiple patenting per innovation in complex and discrete technologies depending on the degree of technological complementarity. The results have unexpected policy implications in that they illustrate how patentees could eliminate competition in the form of substitute technologies through fencing. They have wide managerial implications regarding the valuation of patent portfolios and the design of corporate IP strategies.

==Review==

===Measures of thicket===

The article does not measure impact from patent thickets using measures external to the firm. Instead, the article considers the impact of the firm's own patent bulk (number of patents covering the firm's invention) on patent value, and finds limited results supporting links between patent value and use for "thicket" versus "fence" industries.

===Sample===

Size, data source, industries, geography:
*612 inventions protected by European patents from five industries.
*Data is drawn from a questionaire asking about the value of patents covering various inventions sent to patent-holders and conducted by the EPO in 1994.

===Results===

*No significant results about patent value and use for "thicket" industries:
:''"Neither in the field of electronics, machinery, nor manufacturing of transport equipment there are significant interaction effects to be found between the bulk size and the dummy variables classifying the patents as bargaining patents. Consequently, the notion of a significant ‘thicket’ effect on individual inventions’ values is not supported."''

*Chemical patents are used to exclude competitors as expected in "fence" industry:
**Chemical patents for exploitation by royalties, interacted with bulk is positive.
**Chemical patents used to access foreign market have significantly higher value, but the interaction with bulk is negative.
:''"Another interesting finding relates to the interaction effect for bulk size and those chemical inventions that are primarily intended to exclude competitors. Here, the coefficient is positive, supporting hypothesisH1.3 that a ‘fencing’ effect might increase the value of the whole patentprotected invention by protecting a set of related substitute technologies."''

===Social Welfare Consequences===

*Impact on value can depend on industry and use of patent. In particular patent value is lower for:
**Drug patents used for access to foreign markets;
**Drug patents exploited for royalties/licencing interacted with bulk;
**Electronic patents used to prevent copying;
**Transport patents for exploited for royalties/licensing;
:''"...there is some private value in bulk patenting for both patentees who exchange technology in complex industries (‘thicket patenting’) and patentees seeking exclusiveness in discrete technologies (‘fencing’). The private value of the bulk seems to depend crucially on the use that is made of the patents."''

===Dependent Variable and Model===
*The dependent variable is the value patent(s) of patents covering an invention:
**Value obtained from a survey question that asked the respondent to estimate the added annual value from the patent(s) on a categorical scale from 1 to 5 representing logarithmically increasing intervals of value;
**The monetary values in Euros associated with ordinal value were 1) 0-10,000, 2) 10,001-100,000, 3) 100,001-1 million, 4) 1,000,001 to 10 million, 5) over 10 million, with a median value of 2;
**Unit of observation is the invention covered by the patent(s) as the questionaire asked about the single patent or set of related-patents needed for a given invention.
*A reduced form analytical model of patent value is estimated by OLS or ordered Probit accounts by adding controls in stepwise fashion:
**Age, or the duration of the patent from time of granting until it expires (averaging 9.5 years old);
**Firm size of the patent-holding company measured by number of employees (average of 1,800 workers);
**Primary use of patent: prevent copying invention, exploitation of royalty licensing, or access to foriegn markets;
**Industrial sector of the firm or business unit, likely reflecting the technology of the related invention (chemicals, drug, machinery, electronics, transport equipment);
**Patent "bulk", the number of patents belonging to same invention;
**Interactions between patent "bulk" and industry and use.

Romer, T. and H. Rosenthal (1978), Political Resource Allocation, Controlled Agendas and the Status Quo

2020-09-29T17:23:43Z

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|Has author=Romer, T. and H. Rosenthal
|Has year=1978
|In journal=
|In volume=
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Back to [[BPP Field Exam Papers 2012]]

==Background==
Committees allow for division of labor and gains from specialization. However, a committee also has gate keeping power. If gates kept closed, the status quo prevails. If gates opened, the policy outcome depends on if open or closed rule is use.

===Open Rule===
If committee opens gates, legislators propose policies to challenge status quo. Simply majority voting selects Condorcet winner <math>x_{m}</math>. Committee only opens gate if he prefers <math>x_{m}</math> to <math>x_{0}</math> the status quo.

Suppose <math>x_{0} < x_{c} < x_{m}</math>. We can see that the median of the committee prefers <math>x_{0}</math> to <math>x_{m}</math>, so he will keep the gates closed and not allow a vote, as voting will result in <math>x_{m}</math>. Thus, we get a status quo bias under open rule.

===Closed Rule===
The closed rule solves these types of commitment problems.

Regibeau Rockett (2011) - Assessment Of Potential Anticompetitive Conduct

2020-09-29T17:23:42Z

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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page

==Reference==

*Regibeau, Pierre and Rockett, Katharine (2011), "Assessment of potential anticompetitive conduct in the field of intellectual property rights and assessment of the interplay between competition policy and IPR protection", Working Paper

@inproceedings{regibeau2011assessment,
title={Assessment of potential anticompetitive conduct in the field of intellectual property rights and assessment of the interplay between competition policy and IPR protection},
author={Regibeau, Pierre and Rockett, Katharine},
booktitle={Prepared for the European Commission, Publications Office of the European Union, ISBN 978-92-79-22210-8},
year={2011},
abstract={},
discipline={Policy Report, Econ},
research_type={Discussion},
industry={},
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filename={Regibeau Rockett (2011) - Assessment Of Potential Anticompetitive Conduct.pdf}
}

==File(s)==

*[[Media:Regibeau Rockett (2011) - Assessment Of Potential Anticompetitive Conduct.pdf|Download the PDF]]
*[[:Image:Regibeau Rockett (2011) - Assessment Of Potential Anticompetitive Conduct.pdf|Repository record]]

==Abstract==
==Review==

===Definition of patent thicket===
:''"...patent thickets arise when the IP rights necessary to market a product and do so without significant risk of infringement are held by a large number of different parties."''

===Discussion===

The article reviews literature on the current Competition and IPR protection policy in the U.S. and EU as part of a policy report for the EU Commission.
*There are two main questions with regard to patent thickets:
**How often do patent thickets occur?
**What is the magnitude of the resulting inefficiency?
*Firms without a broad patent portfolio tend to be at a disadvantage when it comes to navigating patent thickets.
: ''"...each party is likely to hold private information about the value/robustness (or even existence) of its relevant IPRs. Such asymmetric information can result in significant delays in reaching an agreement. In addition, fear of competition law can prevent the relevant parties from engaging in truly multilateral negotiations, especially if these take place outside of a formal 'standardisation' process."''

===Social Welfare Consequences===
*The literature does not provide clear evidence of whether patent thickets have positive or negative effects on social welfare; referring to Galasso and Schankerman (2008) they conclude that:
:''"Interestingly, the only rigorous empirical study that we are aware of suggests that the welfare effect of thickets might actually be ambiguous...This means that patent thickets have two opposite effects on the speed with which functional licensing agreements can be reached. On the one hand, the presence of thickets increases the number of required patent negotiations; on the other hand, patent disputes are resolved more quickly."''
*The welfare gains from patent pools are directly related to the complementarity of their patents because substitutability implies unnecessary licensing, but extent of these effects is not quantified:
:''"In other words, while cross-licensing and patent pools might be effective approaches to solving thicket problems, we have no idea of what the corresponding efficiency gains are."''

===Policy Advocated in Paper===
*If a more lenient approach with regards to competition law is the solution, evidence that this would solve actual thickets and provide significant efficiency gains would be needed before such a policy could be recommended.
:''"The idea is that a more informed antitrust attitude towards some forms of licensing arrangements might help private IP owners get around patent thickets more efficiently. Three types of arrangements seem especially useful in this respect: cross-licensing, patent pools and standard-setting organisations."''
*Leniency should be given to pools with greater complementarity, and they should allow members to license independently outside of the pool.
:''"Rules that would trigger the demise of the pool in case of substantial defections are potentially pro-competitive as they help ensure that welfare-improving pools are formed."''

Reinganum (1989) - The Timing Of Innovation Research Development And Diffusion

2020-09-29T17:23:42Z

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*This page is referenced in [[PHDBA602 (Innovation Models)]]

==Reference(s)==
*Reinganum, Jennifer F. (1989), "Chapter 14 The timing of innovation: Research, development, and diffusion", In: Richard Schmalensee and Robert Willig, Editor(s), Handbook of Industrial Organization, Elsevier, Volume 1, Pages 849-908. [http://www.edegan.com/pdfs/Reinganum%20(1989)%20-%20Chapter%2014%20The%20Timing%20Of%20Innovation%20Research%20Development%20And%20Diffusion.pdf (pdf)]

@article{reinganum1989timing,
title={The timing of innovation: Research, development, and diffusion},
author={Reinganum, Jennifer F},
journal={Handbook of industrial organization},
volume={1},
pages={849--908},
year={1989},
publisher={Amsterdam: North Holland}
}

==Abstract==
The analysis of the timing of innovation posits a particular innovation (or sequence of innovations) and examines how the expected benefits, the cost of R&D and interactions among competing firms combine to determine the pattern of expenditure across firms and over time, the date of introduction, and the identity of the innovating firm. In the case of a sequence of innovations, the expected lifetime of a given innovation and the pattern of technological leadership are also determined endogenously. Given that an innovation has been perfected, the extent and timing of its dissemination into use may be examined. Again this may depend upon a number of factors, including the existence of rival firms and institutions which may facilitate or retard the dissemination of innovations...

==Quick Summary==

This paper is a chapter in the Handbook of Industrial Organization. It cover four basic topics:
#'''Symmetric Models''' - Firms are homogeneous and compete to produce an innovation and secure the associated rents
#'''Asymmetric Models''' - There is an incumbent and one or more entrants, which compete to produce an innovatation and secure the associated rents
#'''Licensing and Joint Ventures''' - Do joint ventures increase or restrict innovation and the dissemination of innovations? Licensing might be used strategically to disincentivize a rival from pursuing further innovation.
#'''Diffusion''' - What theories can help explain the observed patterns of diffusion for innovations? When will firms adopt too early or too late?

==Symmetric Models==

There are some basic assumptions that underlie all of the symmetric models:
*'''Firms are homogeneous''', and so we look for symmetric solutions
*'''Innovation is costly''', with costs (eventually at least) decreasing and convex (i.e. there are eventual diseconomies of scale)
*'''The first to invent wins''' the rights to a rent (i.e. gets a patent) and everyone else gets nothing (i.e. no spillovers)

Furthermore:
*All of the models are in continuous time (though this need not be true)
*The date of invention may be deterministic or stochastic (which results in perfectly or imperfectly discriminating contests)

The symmetric models section proceeds as follows:
#Simple '''first price or all pay auction''' set-ups are discussed
#'''Dasguspta and Stiglitz (1980)''' gives a first price auction like game, but with a continously discounted prize and bids translate into times to invention.
#'''Kamien and Schwatz (1976)''' describe the partial equilibrium of a patent race with stochastic invention
#'''[[Loury (1979) - Market Structure And Innovation |Loury (1979)]]''' gives the full equilibrium result
#'''[[Lee,Wilde (1980) - Market Structure And Innovation A Reformulation |Lee and Wilde (1980)]]''' extend Loury by considering the payment of cost as continous until an invention occurs, rather than solely at the outset
#'''Reinganum (1982)''' gives an even more general model, which allows for variable rates of investment over time (and so full strategic responses to rival's investment), and also considers imperfect patent protection.