Showing papers on "Excludability published in 1970"

Price-Cap Regulation and the Incentive to Cooperate in Research

Abstract: This paper considers the impact of price-cap regulation on RD Clemenz, 1991; Cabral and Riordan, 1989). (3) Empirical support for this view has gained considerable ground in recent years. Studies by Ai and Sappington (2002), Prieger (2002; 2001), and Resende (2000) have all found price-caps to be associated with greater innovation and greater productive efficiency, while Uri (2001a) and Lehman and Weisman (2000) have found qualified support. The potential of price-cap regulation to encourage greater innovation has special importance in industries such as telecommunications, where innovations play a critical role in the industry's growth. Uri (2001b), for example, finds that productivity in telecommunications increased nearly 5% per year in the 1990s, with much of this growth primarily due to the development of new production technologies. The practice of developing these innovations, however, has increasingly involved firms cooperating with other firms. Duysters and Hagedoorn (2000) find that joint research partnerships in telecommunications during the 1989 to 1996 period were up 317% over the 1980 to 1988 period. (4) This emerging practice of regulated firms increasing R&D through R&D cooperation with other firms, however, remains largely ignored in the theoretical and empirical literatures. The purpose of this paper is to explore the impact of price-cap regulation in an environment where firms may choose to cooperate in the development of research. Our analysis relies on a symmetric two-stage duopoly model to compare R&D and output levels both with and without price-cap regulation. In the initial stage, firms must choose to either compete in the production of R&D, form a research joint venture by cooperating in the production of R&D, or cooperate in the production of R&D and fully share all cost-reducing research information. Table 1 presents a summary description of these three research scenarios. In the second stage of our model, firms compete in the output market. (5) The results are then compared based on the substitutability of the firm's products, the presence and efficacy of price-cap regulation and the degree to which new knowledge can spillover to rival firms. A spillover occurs, for example, when a firm's privately created knowledge becomes publicly available and the firm lacks any legal mechanism to enforce excludability. (6) Our findings indicate that the intersection between regulatory policies and research cooperation matters. …