Motivated by several examples, including Internet of Things patent licensing, we analyze a model where one or more complementary platforms choose prices for a group of devices that exhibit demand externalities. We show how prices depend on each device's Katz-Bonacich centrality in a network defined by the demand externalities, and how the relevant network differs for an ecosystem monopolist, a social planner, or a group of complementary platforms. For the latter case, we revisit Cournot's analysis of complementary monopolies and show that in our setting, it is possible for the total price of a particular device to decline when the number of monopoly platforms increases. Finally, we analyze a partial merger that leaves complementary monopolies on just one side of a platform, producing a novel tradeoff between eliminating double marginalization and internalizing network effects. Overall, this study offers a tractable model of multi-product ecosystems, and contributes to the two-sided market literature by analyzing complementary platforms in a general multi-sided market.
U.S. firms have reduced their investments in scientific research compared to product development. We use Census data to study how the composition of R&D responds to an increase in the cost of funds. Companies forced to refinance during the 2008 financial crisis made substantial cuts to R&D. These reductions were highly concentrated in basic and applied research, and their impact appears in citation-weighted patent output after three years. We explore several mechanisms and conclude that the overall pattern of results is consistent with an important role for technological competition in determining the composition of firms’ R&D investments.
Motivated by a descriptive analysis of standards development within the Internet Engineering Task Force, we develop a dynamic discrete choice model of R&D that highlights the decision to continue or abandon a line of research. Our estimates imply that sixty percent of IETF proposals are publishable, but only one-third of those good ideas survive the review process. Increased attention and author experience are associated with faster learning. We simulate two counterfactual innovation policies: an R&D subsidy and a publication-prize. Subsidies have a larger impact on research output, but prizes perform better when accounting for researchers’ opportunity costs.
Strategic management research frequently seeks to explain variation in organizational performance using metrics such as accounting profits scaled by firm assets (ROA). A concern with accrual-based accounting methods, perhaps best illustrated by a large discontinuity in the distribution of ROA around zero for U.S. public firms, is that operational and accounting practices will artificially inflate/deflate accounting profit. In this manuscript we establish that such earnings management is common, introduces non-classical noise, and distorts our understanding of broad drivers of firm performance. We conclude with analysis showing that an alternative performance measure, Cash Flows from Operations on Assets (OCFOA), offers a robust vehicle for checking results using accounting profits.
It is more than 25 years since the authors of the Yale and Carnegie surveys studied how firms seek to protect the rents from innovation. In this paper, we revisit that question using a nationally representative sample of firms over the period 2008-2015, with the goal of updating and extending a set of stylized facts that has been influential for our understanding of the economics of innovation. There are five main findings. First, while patenting firms are relatively uncommon in the economy, they account for an overwhelming share of R&D spending. Second, firms consider utility patents less important on average than other forms of IP protection, like trade secrets, trademarks, and copyrights. Third, industry differences explain a great deal of the level of firms’ engagement with IP, with high-tech firms on average being more active on all forms of IP. Fourth, we find no significant differences in the use of IP strategies across firms at different points of their life cycle. Lastly, unlike age, firms of different size appear to manage IP significantly differently. On average, larger firms tend to engage much more extensively in the protection of IP, and this pattern cannot be easily explained by differences in the type of R&D or innovation produced by a firm. We also discuss the implications of these findings for innovation research and policy.
Representation of women and minorities in a "selectorate" — the group that chooses an organization’s leaders — is a key mechanism for promoting diversity. We show that representation, on its own, is not sufficient for selecting gender diversity: a supportive organizational culture is also required. In the case of the Internet Engineering Task Force, a random increase in female representation in its selection committee caused an increase in female appointments only after cultural norms supporting diversity and inclusion became more salient.
Declining circulation and advertising revenue have led many newspapers to shrink their in-house staff and rely more on content sourced from external wire agencies. In this study, we analyze how the mix of in-house and wired content impacts online readers’ subscription decisions using clickstream data from a large regional U.S. newspaper. To control for sample selection that may occur if readers visit the site on days with their preferred content, we use local precipitation as an excluded variable that indirectly randomizes their exposure to content from these two sources. We find that publishing 10 additional in-house articles a day would increase a reader’s rate of subscription by 15 percent relative to the baseline subscription rate. Publishing 10 additional wired articles a day, on the other hand, would decrease the subscription rate by 11 percent. Effects of content in some categories within each source go against the overall trend. Producing more General News, Sports, and Entertainment articles, and wiring more Business articles increase subscription. In contrast, publishing more Lifestyle, Health, and Food articles do not encourage subscriptions, regardless of their sources. These results suggest that there exist opportunities for newspapers to increase subscriptions by carefully publishing the right content from the right source.
This essay describes the problem of patent hold-up that can arise when firms own patents that are essential to an industry stadnard and fail to negotiate an ex ante license with implementers. I discusses a number of steps that standards setting organizations and government regulators might take to alleviate this problem.
Boston University
Questrom School of Business
Rafik B. Hariri Building
595 Commonwealth Ave.
Boston, MA 02215
(617) 358-5725
tsimcoe@bu.edu