Copyright (c) 2009 All rights reserved. http://works.bepress.com/joshuagans Recent documents in Joshua S Gans en-us Thu, 01 Oct 2009 23:31:21 PDT 3600 http://works.bepress.com/joshuagans/28 http://works.bepress.com/joshuagans/28 Thu, 01 Oct 2009 15:07:16 PDT This paper considers the effect of exclusive contracts on investment decisions in a market with two upstream and two downstream firms. Segal and Whinston's (2000) irrelevance result is generalized and it is shown that exclusive contracts have no effect on the equilibrium level of internal investment for the contracted parties when competition exists in both the upstream and downstream markets. Furthermore, by considering a more competitive environment we are able to demonstrate that strongly internal investment by rival upstream-downstream bargaining pairs is similarly unaffected by the presence of exclusive contracts. Catherine C. de Fontenay Industrial organisation http://works.bepress.com/joshuagans/27 http://works.bepress.com/joshuagans/27 Wed, 01 Jul 2009 17:45:29 PDT This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits. Martin Byford Industrial organisation http://works.bepress.com/joshuagans/26 http://works.bepress.com/joshuagans/26 Wed, 01 Jul 2009 16:38:40 PDT The business model of commercial-financing relies on advertisers to pay for content. Advertisers will not pay if consumers unbundle the advertisements from the content (advertising bypass). TiVo, remote controls, and pop-up ad blockers are examples of ad-avoidance technologies. Purchasing such devices causes content providers to increase advertising levels (as has happened recently) because the remaining audience is less adverse to ads, and leads to a downward spiral. The bypass option may cause total welfare to fall. Higher avoidance reduces content quality and more mass-market content. We cast doubt on the profitability of using subscriptions to counter the impact of ad-avoidance. Simon P. Anderson Industrial organisation http://works.bepress.com/joshuagans/25 http://works.bepress.com/joshuagans/25 Tue, 19 May 2009 21:41:02 PDT In a dynamic environment where underlying competition is 'for the market,' this paper examines what happens when entrants and incumbents can negotiate for the market. For instance, this might arise when an entrant innovator can choose to license to or be acquired by an incumbent firm; i.e., engage in cooperative commercialization. It is demonstrated that, depending upon firms' dynamic capabilities, there may or may not be gains to trade between incumbents and entrants in a cumulative innovation environment; that is, entrants may not be adequately compensated for losses in future innovative potential. This stands in contrast to static analyses that overwhelmingly identify positive gains to trade from such cooperation. It is also demonstrated that, in this environment, firms may have incentives to license or not precisely adverse to the welfare benefits of such actions and that acquisition is always socially undesirable. Joshua S. Gans Economics of innovation http://works.bepress.com/joshuagans/24 http://works.bepress.com/joshuagans/24 Mon, 23 Feb 2009 15:19:05 PST This paper examines then notion that more stringent climate change policy will induce innovation in environmentally friendly technologies. While past work has been concerned that such policies may stimulate such innovation at the expense of innovation elsewhere in the economy, the model presented here challenges the presumption that environmentally friendly innovation will be increased. It is demonstrated that a tighter emissions cap will reduce the scale of fossil fuel usage and that this effect will diminish incentives to improve fossil fuel efficiencies. At the same time, such policies may stimulate innovation that improves the efficiency of alternative energy but that the impact of carbon scarcity may feedback to diminish innovation incentives in this direction as well. Only for offsetting technologies that directly abate carbon pollution will there be a positive impact on the rate of innovation. These results have implications for the setting of climate change targets and the design of climate change policy. Joshua S. Gans Economics of innovation Environmental economics http://works.bepress.com/joshuagans/23 http://works.bepress.com/joshuagans/23 Tue, 27 Jan 2009 21:20:39 PST This paper draws on recent work in market design to evaluate the conditions under which a market for ideas or technology (MfTs) will emerge and operate in an efficient way. While most research on MfT have focused primarily on bilateral exchanges, market design principles suggest that any single transaction takes place in the shadow or all other potential transactions. As highlighted by Roth (2007), effective market design must ensure four basic principles: market thickness, lack of congestion, market safety, and avoidance of "repugnance." Taken together, these conditions ensure that participants in a market have opportunities to trade with a wide range of potential transactors (market thickness), that the market is rapid enough (relative to the speed of transactions) that market participants can feasibly turn down offers in order to seek better matches (lack of congestion), potential market participants have a high incentive to participate in the market and avoid strategic interaction which might undermine allocative efficiency and social welfare (market safety), and that market trade is not undermined by other social values which limit the ability to charge positive prices for a good (avoidance of repugnance). This paper provides a critical examination of these criteria for MfT. Our analysis suggests that microeconomic, strategic, and institutional factors likely inhibit the allocative efficiency of MfT in most circumstances. For example, Arrow's disclosure problem suggests that the value of a given idea to any one buyer may be decreasing in the number of other potential buyers who have been able to evaluate the idea (due to information leakages in the valuation process). As a result, a key property of ideas - the potential for expropriation - limits the potential for market thickness and lack of congestion identified by Roth. At the same time, key institutional developments such as the development of formalized IP exchanges and increased attention on how to design the patent system to facilitate technology transfer suggest that effective market design may be possible for some innovation markets. Perhaps most intriguingly, our analysis suggests that markets for ideas are beset by the "repugnance" problem: from the perspective of market design, Open Science is an institution that places normative value on "free" disclosure and so undermines the ability of ideas producers to earn market-based returns for producing even very valuable "pure" knowledge. Joshua S. Gans Economics of innovation http://works.bepress.com/joshuagans/22 http://works.bepress.com/joshuagans/22 Sun, 30 Nov 2008 19:14:52 PST This paper is the first to provide a general context whereby potential entry can permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from existing incumbents, we demonstrate that, when competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the accommodating behavior of efficient incumbents. Similarly, such accommodating behavior may deter efficient investment by an incumbent or mergers that would generate social welfare improvements. These results have implications as to how economists view potential entry and its benefits. Joshua S. Gans Industrial organisation http://works.bepress.com/joshuagans/21 http://works.bepress.com/joshuagans/21 Mon, 03 Nov 2008 17:31:33 PST The business model of commercial (free-to-air) television relies on advertisers to pay for programming. Viewers 'inadvertently' watch advertisements that are bundled with programming. Advertisers have no reason to pay to have their ads embedded if the viewers succeed in unbundling the advertisements from the entertainment content (advertising bypass). TiVo (Digital Video Recorder) machines, remote controls, and pop-up ad blockers are all examples of ad-avoidance technologies whose deployment detracts from the willingness to pay of advertisers for audience since a smaller audience is actually exposed to the ads. However, viewer purchases of devices to avoid ads may cause a disproportionate share of the ad nuisance to fall on the remaining audience. As these are views less adverse to ads, this causes broadcasters to increase advertising levels. This result is in line with observed facts. The bypass option may cause total welfare to fall. We demonstrate that higher penetration of such technologies may cause program content to be of lower quality as well as to appeal to a broader range of viewers (rather than niches). In addition, we cast doubt on the profitability of using subscriptions to counter the impact of ad-avoidance. Joshua S. Gans Industrial organisation http://works.bepress.com/joshuagans/20 http://works.bepress.com/joshuagans/20 Sat, 18 Oct 2008 15:55:48 PDT This paper provides a prospective and retrospective quantitative assessment of the impact of a passive vertical integration between a large electricity retailer and a large electricity generator in the Australian National Electricity Market (NEM). We adapt a standard model of fixed-price forward contracting behavior by an electricity retailer before and after the acquisition of a share of a baseload electricity generation plant to determine the likely change in its contracting behavior. Using bid and market outcome data during the three years leading up to the acquisition, we estimate the change in bidding behavior of the generation unit owner from the change in its fixed-price forward contract obligations brought about by the acquisition. This change in bidding behavior is used to compute a prospective change in each half-hourly wholesale price during the pre-acquisition period. Because this acquisition was allowed to take place, we also use market-clearing prices of wholesale electricity in the four states of Australia in NEM at that time and the price of the marginal input fuel during the pre-acquisition and postacquisition time periods to compute a variety of treatment effects estimates of the impact of this acquisition. We find fairly close agreement between the prospective and retrospective quantitative impact of the acquisition on wholesale prices. In both methodologies find a significant increase in wholesale electricity prices associated with the acquisition, which emphasizes the importance of taking into account the extreme susceptibility of short-term wholesale electricity markets to the exercise of unilateral market in any competition analysis in this industry. Joshua S. Gans Industrial organisation http://works.bepress.com/joshuagans/19 http://works.bepress.com/joshuagans/19 Sun, 22 Jun 2008 23:15:47 PDT The purpose of this postscript is to review the many responses to our AussieMac proposal since we first published the original paper on the 26th of March, 2008. As we shall see, our study triggered a significant amount of industry comment, media attention and, more recently, government inquiry--indeed, much more than we initially anticipated. Christopher Joye Financial Economics