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We consider a duopoly where firms compete on waiting times in the presence of an industry benchmark. The demand captured by a firm depends on the gap between the firm's offer and the benchmark. We refer to the benchmark effect as the impact of this gap on demand. The formation of the benchmark is endogenous and depends on both firms' choices. When the benchmark is equal to the shorter of the two offered delays, we characterize the unique Pareto optimal Nash equilibrium. Our analysis reveals a stickiness effect in which firms equate their delays at the equilibrium when the benchmark effect is sufficiently strong. When the benchmark corresponds to a weighted average of the two offered delays, we show the existence of a pure Nash equilibrium. In this case, we reveal a reversal effect, in which the market leader, i.e., the firm that offers a shorter delay, becomes the follower when the benchmark effect is sufficiently strong. In both cases, we show that customers' equilibrium waiting times are shorter with the benchmark effect than without it. Our models also capture customers' loss aversion, which, in our setting, states that demand is more sensitive to the gap between the delay and the benchmark when the delay is longer than the benchmark (loss) than when it is shorter (gain). We characterize the impact of this loss aversion on the equilibrium in both settings. Finally, we show numerically that the stickiness and reversal effects still exist when firms also compete on price.

© 2014 INFORMS

We analyze incidence and evolution of patent thickets. The paper provides a modeling framework showing how competition for patent portfolios, complementarity of patented technologies and hold-up affect patenting. Predictions are that technological opportunity reduces patenting in complex technologies, while increasing patenting in discrete technologies. Competition has the opposite effects. The predictions are tested using European patent data in a panel with 2,074 patenting firms in thirty technology areas over fifteen years. A new measure of technological complexity is applied. GMM estimation results confirm the predictions of our preferred model. Patent thickets are found in nine out of thirty technology areas.

© 2013 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd

We study how an individual's exposure to external information regulates the evaluation of entrepreneurial opportunities and entrepreneurial action. Combining data from interviews, a survey, and a comprehensive web log of an online user community spanning eight years, we find that technical information shaped opportunity evaluation and that social information about user needs drove individuals to entrepreneurial action. Our empirical findings suggest that reducing demand uncertainty is a central factor regulating entrepreneurial action, an insight that received theories of entrepreneurial action have so far overlooked.

With permission of the Academy of Management

Our objective is to understand how a firm’s product development capability (PDC) affects the launch strategy for a durable product that is sequentially improved over time in a market where consumers have heterogeneous valuations for quality. We show that the launch strategy of firms is affected by the degree to which consumers think ahead. However, only the strategy of firms with high PDC is affected by the observability of quality. When consumers are myopic and quality is observable, both high and low PDC firms use price skimming and restrict sales of the first generation to consumers with high willingness to pay (WTP). A high PDC firm, however, sells the second generation broadly while a low PDC firm only sells the second generation to consumers with low WTP. When consumers are myopic and quality is unobservable, a firm with high PDC signals its quality by offering a low price for the first generation, which results in broad selling. The price of the second generation is set such that only high WTP consumers buy. A firm with low PDC will not mimic this strategy. If a low PDC firm sells the first generation broadly, it cannot discriminate between the high and low WTP consumers. When consumers are forward looking, a firm with high PDC sells the first generation broadly. This mitigates the “Coase problem” created by consumers thinking ahead. It then sells the second generation product only to the high WTP consumers. In contrast, a firm with low PDC does the opposite. It only sells the first generation to high WTP consumers and the second generation broadly.

With permission of Elsevier

Measuring upward pricing pressure (UPP) has recently been proposed by Farrell and Shapiro (2010) as an alternative screening device for horizontal mergers. We extend the concept of UPP to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers and the market for online search, where advertising demand depends on the number of users. The formulae we derive depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we show that it is important to take the two-sidedness of the market into account when evaluating UPP.

© 2013 The Author(s). The Economic Journal © 2013 Royal Economic Society

This paper asks whether firms respond to cost shocks by introducing process innovations and increasing the use of managerial incentives. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in costs arising from increased border security along the 49th parallel fol- lowing 9/11. Our longitudinal difference-in-differences estimates indicate that firms responded to the cost shock by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency.

© 2013 Wiley Periodicals, Inc.

Payment card networks, such as Visa, require merchants' banks to pay substantial "interchange" fees to cardholders' banks, on a per transaction basis. This paper shows that a network's profit-maximizing fee induces an inefficient price structure, over-subsidizing card usage and over-taxing merchants. In contrast to the literature we show that this distortion is systematic and arises from the fact that consumers make two distinct decisions (membership and usage) whereas merchants make only one (membership). These findings are robust to competition for cardholders and/or for merchants, network competition, and strategic card acceptance to attract consumers.

Copyright © 2013 by the American Economic Association.