In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures. **

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Absorptive capacity: a new perspective on learning and innovation

Given assumptions about the characteristics of knowledge and the knowledge requirements of production, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members. In contrast to earlier literature, knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation. The resulting theory has implications for the basis of organizational capability, the principles of organization design (in particular, the analysis of hierarchy and the distribution of decision-making authority), and the determinants of the horizontal and vertical boundaries of the firm. More generally, the knowledge-based approach sheds new light upon current organizational innovations and trends and has far-reaching implications for management practice.

Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal (17), pp.

https://memberfiles.freewebs.com/84/90/65819084/documents/TOWARD%20A%20KNOWLEDGE-BASED%20THEORY%20OF%20THE.pdf

Toward a Knowledge-Based Theory of the Firm

The authors assume that firms invest in R&D not only to generate innovations, but also to learn from competitors and extraindustry knowledge sources (e.g., university and government labs). This argument suggests that the ease of learning within an industry will both affect R&D spending, and condition the influence of appropriability and technological opportunity conditions on R&D. For example, they show that, contrary to the traditional result, intraindustry spillovers may encourage equilibrium industry R&D investment. Regression results confirm that the impact of appropriability and technological opportunity conditions on R&D is influenced by the ease and character of learning. Copyright 1989 by Royal Economic Society.

Innovation and Learning: The Two Faces of R & D

A central part of the innovation process concerns the way firms go about organizing search for new ideas that have commercial potential. New models of innovation have suggested that many innovative firms have changed the way they search for new ideas, adopting open search strategies that involve the use of a wide range of external actors and sources to help them achieve and sustain innovation. Using a large-scale sample of industrial firms, this paper links search strategy to innovative performance, finding that searching widely and deeply is curvilinearly (taking an inverted U-shape) related to performance. Copyright © 2005 John Wiley & Sons, Ltd.

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Open for innovation: the role of openness in explaining innovation performance among U.K. manufacturing firms

GENERAL-EQUILIBRIUM PROOFS of the neutrality of money rely on a set of now-standard assumptions (the so-called neoclassical assumptions of monetary theory) concerning price flexibility, expectations of future prices, distribution effects, and money illusion.' Although the sufficiency of these assumptions appears well established, their necessity remains very much a topic for current research.2 This paper investigates one aspect of this topic. It shows that the complete prohibition of money illusion, as in the conventional (or Patinkin) formulation, is overly restrictive. An alternative formulation is developed in which, in contrast to the Patinkin version, money illusion becomes a matter of degree. This more general formulation leads directly to a weaker moneyillusion postulate, one which nevertheless suffices for neutrality. For those who use the Patinkin model, this is surely a comforting result. Because it is a razor's-edge case, the complete absence of money illusion is an unlikely phenomenon indeed. So narrow a restriction makes one suspect instinctively any theory which depends critically upon it and makes one reluctant to take seriously the policy implications it may offer. It turns out, however, that the Patinkin money-illusion postulate plays a very much smaller role in the theory of the real-balance effect than has been generally realized. So long as market participants show some (no matter how slight) degree of sensitivity to price-level change, the invalid dichotomy is destroyed. Moreover, something very much like a real-balance effect may be seen to operate with comparative-static effects similar to those obtained in models incorporating the strict Patinkin postulate.

Absence of money illusion: a sine qua non for neutral money?*

THE HANDBOOK OF INDUSTRIAL ORGANIZATION is mistitled. At the very least, the volumes produced by Richard Schmalensee and Robert Willig and their cadre of authors are a Two-hand book. Indeed, given the weight of each volume, it would be more appropriate to call the product a Two-arm book. (This is not to be confused with the two-armed bandit of probability theory and consumer search theory, although those aware of the $157 price tag might question whether I have too quickly dismissed the latter appellation.) The substantial product admirably achieves the goal the editors articulate: "Our purpose has been to provide reasonably comprehensive and up-to-date surveys of recent developments and the state of knowledge in the major areas of research in this field as of the latter part of the 1980's, written at a level suitable for use by non-specialist economists and students in advanced graduate courses." The two volumes of the Handbook will indeed " serve as a source, reference, and teaching supplement for industrial organization (or industrial economics)." "

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Directions and Trends in Industrial Organization: A Review Essay on the Handbook of Industrial Organization

E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private antitrust suit for damages against a global vitamins cartel. The central issue in the litigation was whether foreign plaintiffs injured by the cartel's conduct abroad could bring suit in U.S. court, an issue that was ultimately resolved in the negative. We take a welfarist perspective on this issue and inquire whether optimal deterrence requires U.S. courts to take subject matter jurisdiction under U.S. law for claims such as those in Empagran. Our analysis considers, in particular, the arguments of various economist amici in favor of jurisdiction and arguments of the U.S. and foreign government amici against jurisdiction. We explain why the issue is difficult to resolve, and identify several economic concerns, which the amici did not address, that may counsel against jurisdiction. We also analyze the legal standard enunciated by the Supreme Court and applied on remand by the DC Circuit, and we argue that its focus on independent harms and proximate causation is problematic and does not provide an adequate economic foundation for resolving the underlying legal issues. A revised version of this paper is in ANTITRUST STORIES from Foundation Press, edited by Daniel Crane and Eleanor Fox and in Competition Law & Economics 309 (2007).

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United States Courts and the Optimal Deterrence of International Cartels: A Welfarist Perspective on Empagran

E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private antitrust suit for damages against a global vitamins cartel. The central issue in the litigation was whether foreign plaintiffs injured by the cartel’s conduct abroad could bring suit in U.S. court, an issue that was ultimately resolved in the negative. We take a welfarist perspective on this issue and inquire whether optimal deterrence requires U.S. courts to take subject matter jurisdiction under U.S. law for claims such as those in Empagran. Our analysis considers, in particular, the arguments of various economist amici in favor of jurisdiction and arguments of the U.S. and foreign government amici against jurisdiction. We explain why the issue is difficult to resolve, and identify several economic concerns, which the amici did not address, that may counsel against jurisdiction. We also analyze the legal standard enunciated by the Supreme Court and applied on remand by the DC Circuit, and we argue that its focus on "independent" harms and "proximate" causation is problematic and does not provide an adequate economic foundation for resolving the underlying legal issues. A revised version of this paper is forthcoming in ANTITRUST STORIES from Foundation Press, edited by Daniel Crane and Eleanor Fox.

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Alvin K. Klevorick

Papers

Absence of money illusion: a sine qua non for neutral money?*

Directions and Trends in Industrial Organization: A Review Essay on the Handbook of Industrial Organization

United States Courts and the Optimal Deterrence of International Cartels: A Welfarist Perspective on Empagran

United States Courts and the Optimal Deterrence of International Cartels: A Welfarist Perspective on Empagran

The Oversight of Restructured Electricity Markets