Physical telecom networks are costly and few, traditionally to the point of monopoly. Innovation thrives with many independent minds. So one might hope independent innovators, not only its proprietor M, can offer innovative services on a network, as has been true on the Internet. This issue is central in telecom policy; it also arises elsewhere, including complaints about Microsoft. I try to expound the following key points. Often an unregulated M has ex ante incentives to organize service innovation efficiently. But this incentive breaks down ex post as M can extract an independent J’s quasi-rents (Farrell and Michael Katz 2000). Even ex ante, the one monopoly rent theorem (Ward Bowman 1957) fails when M’s bottleneck access business is more regulated than its competitive services (e.g., Jean-Jacques Laffont and Jean Tirole 2000). This tempts M to sabotage J’s innovations. Quarantining M from the service sector solves these problems, but excludes the firm with (often) the best opportunities and the strongest incentives to innovate. Parity pricing or ECPR (Robert Willig 1979) purports to get the best of both worlds (BoBW). But it seems so hard to implement in innovation markets that one might construe ECPR analysis as reductio ad absurdum for BoBW

This paper considers a dynamic model of innovations in which firms can endogenously bias the direction of technological change. Both in a North–North and North–South context, we show that, when globalization triggers an increased threat of technological leapfrogging or imitation, firms tend to respond to that threat by biasing the direction of their innovations towards skilled-labor-intensive technologies. We show that this process of defensive skill-biased innovations generates an increase in wage inequalities in both regions. We then discuss suggestive empirical evidence of the existence of defensive skill-biased technical change

We report econometric results concerning the diffusion of detachable chairlifts in the United States that provide the first empirical evidence that the adoption of a technological innovation by a firm decreases the likelihood that a local competitor will also adopt it. We model the effect that an innovation in service speed has on a f's incentive to differentiate the quality of its service from that of its competitors. In our model, the incentive to adopt is negatively related to the number of competitors who have already adopted. Our empirical results support this hypothesis

Procurement of an innovation often requires substantial effort by potential suppliers. Motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable, if innovators cannot benefit directly by marketing their innovations, and if the buyer cannot extract up-front payments from suppliers. We study the use of contests to procure an innovation in such an environment. An auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests. If contestants are asymmetric, it is optimal to handicap the most efficient one

This paper analyses the interactions between growth and the contracting environment in production. With incompleteness in contracting, viable production relationships between firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth. The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature. We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environments. In particular, we demonstrate that a technological shock (increasing productivity of research) can, through this interaction, lead to a productivity slowdown and a shift in labour market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter-term “contractor” type arrangements. We show the consistency of an increase in the proportion of the labour force under short-term employment, increased relative returns of workers in high-productivity sectors, and increased income inequality, with a productivity slowdown of finite duration

We compare how new pharmaceuticals are priced in the price-regulated Swedish market with how they are priced in the U.S. market, as studied by Lu and Comanor (1998). We collect a data set consisting of all new chemical entities (NCEs) launched in Sweden between 1987 and 1997, and test the same models as Lu and Comanor. In line with their results, we find that introductory prices depend on the degree of therapeutic innovation. Contrary to the results from the U.S. market, Swedish real prices for NCEs fall substantially over time for all classes of therapeutic innovation. Also contrary to the findings of Lu and Comanor, we find no effect of the presence of branded substitutes on either introduction prices or price dynamics. Our results indicate that the price regulation discourages price competition between brandname drugs

Segerstrom (1998) demonstrates that the social optimum requires “radical” technological breakthroughs to be treated less favorably than “incremental” innovations in a growing economy. The aim of this note is to assess the robustness of this welfare result on the basis of two levels of generalization: (i) the elasticity of substitution between any two goods is allowed to be larger than one, and (ii) inter-industry spillovers are introduced. We show that Segerstrom’s results can be reversed. It is also shown that in contrast to Segerstrom, R&D subsidies can be globally optimal, irrespective of the size of innovation, when inter-industry spillovers are large

We document several factors that help explain cross-sectional variations in the post-revision price drift associated with analyst forecast revisions. First, the market does not make a sufficient distinction between revisions that provide new information (“high-innovation” revisions) and revisions that merely move toward the consensus (“low-innovation” revisions). Second, the price adjustment process is faster and more complete for “celebrity” analysts (Institutional Investor All-Stars) than for more obscure yet highly accurate analysts (Wall Street Journal Earnings-Estimators). Third, controlling for other factors, the price adjustment process is faster and more complete for firms with greater analyst coverage. Finally, a substantial portion of the delayed price adjustment occurs around subsequent earnings-announcement and forecast-revision dates. Collectively, these findings show that more subtle aspects of an earnings revision signal can hinder the efficacy of market price discovery, particularly in firms with relatively low analyst coverage, and that subsequent earnings-related news events serve as catalysts in the price discovery process

The Paris Bourse (currently Euronext Paris) refined its trading system to include electronic call auctions at market closings in 1996 for its less-liquid Continuous B stocks and in 1998 for its more actively traded Continuous A stocks. This paper analyzes the effects of the innovation on market quality. Our empirical analysis of price behavior for two samples of firms (50 B stocks and 50 A stocks) for two different calendar dates (1996 and 1998) indicates that introduction of the closing calls has lowered execution costs for individual participants and sharpened price discovery for the broad market. We further observe that market quality is improved at market openings, albeit to a lesser extent. We suggest that a positive spillover effect explains the closing call's more pervasive impact

Universities are a key institution in the U.S. innovation system, and an important aspect of their involvement is the role they play in public-private partnerships. This note offers insights into the performance of industry-university research partnerships, using a survey of precommercial research projects funded by the Advanced Technology Program. Although results must be interpreted cautiously because of the small size of the sample, the study finds that projects with university involvement tend to be in areas involving new science and therefore experience more difficulty and delay, yet are more likely not to be aborted prematurely. Our interpretation is that universities are contributing to basic research awareness and insight among the partners in ATP-funded projects