- Information Sharing and R&D Incentives (Job Market Paper) [pdf]
In this paper, I investigate how sharing of cost information affects firms’ incentives to invest in cost reduction and the role of the observability of rivals’ R&D investment level. I study duopoly price competition with cost reducing R&D in three cases: the complete information case, unobservable investment case and observable investment case. The opponents’ cost information is unknown in both the unobservable investment case and the observable investment case, but the investment level is unobservable and observable, respectively. I find that firms have identical incentives of investment in the complete information and the unobservable investment case, whereas they will tend to underinvest in cost reduction when the investment level is observable because a negative strategic effect makes investment less profitable. Due to this underinvestment, welfare and the consumer surplus decrease in the observable investment case. These results have implications for the analysis of information sharing in markets where cost reduction activities are important.
- Tying and R&D Incentives in Two-sided Markets
In this paper, the effect of tying arrangements on platforms’ R&D incentives in two-sided markets is analyzed. The model shows that when all users single-home, the tying distorts platforms’ R&D incentives because the tying acts as a commitment device to invest aggressively in R&D, leading to rival firm being foreclosed in the R&D decision stage even if the tying does not have exclusionary effect in the price competition. However, when exclusive contents are offered to each platform so that some of the users can engage in multi-homing, the tying raises the rival firm’s R&D incentives as well as the tying firm’s R&D incentives. This is because i) tying induces more users to multi-home so that total demand of users for both platforms can be increased and ii) the strategic effect in R&D competition disappears in the multi-homing case on the user side, implying that the rival firm’s R&D incentives is not affected by more aggressive R&D investment of tying firm. Thus, the anti-competitiveness of tying involved with innovation can vary depending on the possibility of user’s multi- homing.
- The Grandfather of Price Discrimination (with B. Vaughan and A. Yankelevich)
We examine firms’ motivations for implementing grandfather clauses that allow certain consumers to continue access to a service at a favorable, but no longer available price. We find that when consumers are fully cognizant of their valuations for available product alternatives, firms are typically better off offering all potential consumers the optimal uniform price. However, if grandfathered consumers are made complacent, failing to reevaluate the service over time, grandfather clauses may permit firms to profitably price discriminate between early adopters and new consumers in exchange for forfeiting the right to optimally set prices for early adopters.