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Corporate Raider
(2002)
We consider an R&D contest between n firms in the presence of external spillovers. Our analysis focuses on the effects of these knowledge spillovers on joint venture activities between firms. In particular, we are interested in how different budget responsiblities within the research joint venture (RJV) affect profits of firms taking part in the joint venture and profits of their non-cooperating rival firms. Three arrangements for RJVs are analyzed: First, cooperation, in which the firms participating in the joint venture completely share the knowledge they created in the innovation process and each firm has a sovereign budget responsibility. Second, a collusive arrangement in which the participating firms not only share their knowledge but have joint budget responsibilities in the sense that they make all strategic choices cooperatively and maximize joint profits. Third, a hierarchical form, in which the cooperating firms establish a joint headquarter which has strategic budget responsibility in the sense that can strategically subsidize R&D expenditures of its member firms so as to maximize overall RJV profits. We show that the first two arrangements can be mimiced in the hierarchical structure and that a hierarchical structure is optimal if it completely subsidizes its members’ R&D activities. In this case all rival firms are driven out of the contest.
It is a well known result in the literature of principal-agent relationships that if the principal has the possibility to monitor the agent’s action at some cost, his monitoring probability is a decreasing function in the level of outcome. Moreover, the principal will reward the agent, if he is found to have complied with his interests. The purpose of this article is to show that these results depend crucially on the assumption that the principal can commit to his monitoring device at the time of contracting. In fact, we show that in a situation in which the principal is not able to commit to his investment in his monitoring technology, (1) the principal’s investigation intensity is increasing in the level of outcome and, (2) the agent’s reward is lower in the case investigation reveals the agent’s action than it is in the case in which investigation is uninformative.
This paper considers a transport network with two firms that operate a parallel service on a hub-to-hub connection and monopoly services on spoke-to-hub connections under increasing returns to scale. We find the following: A symmetric equilibrium cannot occur under independent (non-cooperative) pricing when the number of spoke-to-spoke passengers becomes positive. The effect of cooperative pricing on mark-ups in spoke-to-hub, hub-to-hub and spoke-to-spoke markets (where double marginalization can occur) can be positive or negative. Cooperation can reduce total welfare though hub-to-hub markets are small.
The regulation of rail network access is a key component of the EU policy that aims to strengthen rail markets. Two specific regulations are proposed: (i) a priority for long-distance (freight) services and (ii) a scarcity premium. Based on a congested network with two rail links, numerical simulations demonstrate that total surplus can be greater under the priority rule, which depends on the network charge per train-kilometer. Consumer surplus, on the other hand, is always greater under the priority rule, while fixed network-cost recovery is easier to achieve if a scarcity premium exists.