This paper empirically examines the 'long purse' hypothesis, formalized by Patrick Bolton and David Scharfstein (1990), that incumbents may drive out entrants through aggressive pricing. The author analyzes the pricing of 733 disk drives between 1980 and 1988. Drives that are adjacent to those manufactured by thinly capitalized undiversified rivals are priced lower than other drives during the later years in the sample, when little equity financing was available to these firms. The results are robust to controls for alternative hypotheses and to other specifications of the hedonic regression.

Beginning in the late 1980s, American corporations began increasingly linking the compensation of central research personnel to the economic objectives of the corporation. This paper examines the impact of the shifting compensation of the heads of corporate research and development. Among firms with centralized R&D organizations, a clear relationship emerges: more long-term incentives (such as stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be associated with more patent awards and patents of greater originality. Short-term incentives appear to be unrelated to measures of innovation.