Two essays in industrial organization theory.

Abstract

Chapter 1 analyzes firms' incentives to collude in timing of introducing new product models in the framework of a repeated game of preemption and how the time intervals between introductions of new models could vary across different economies. For a given interest rate, sustainable time intervals exist only when consumers' demand grows sufficiently large over time. When the Pareto superior time interval is sustainable, it becomes longer as the number of firms increases, the cost of R&D rises, the cost of production rises, or market demand size at each moment shrinks proportionately. I also characterize the set of collusive subgame perfect equilibrium values and collusive subgame perfect equilibrium strategies. Chapter 2 models a trade-off in cross-licensing. A firm has an incentive to cross license because it improves the quality of its product through using its rival's patents, while cross-licensing may intensify competition in the product market because both firms sell similar higher quality goods. I show the condition for the existence of mutually acceptable cross-licensing fee and characterize the range of licensing fees. I also derive a formula for a licensing fee. In terms of social welfare cross-licensing is generally more desirable than non-licensing, but it is sometimes the case with Cournot competition and always the case with Bertrand competition that firms have no incentive to cross license. Finally, I analyze cross-licensing in a dynamic framework. In each period one of two firms stochastically succeeds in innovation. The number of innovations accumulated by each firm influences both firms' subjective belief about the probability of success, and the relative size of the profits in cross-licensing to the profits in non-licensing. I show that the dynamic cross-licensing fee is identical to the static cross-licensing fee under reasonable assumptions. Therefore, most of the results in static analysis are still valid in a dynamic framework.