Template-Type: ReDIF-Article 1.0 Author-Name: Richard J. Gilbert Author-Name: Paul Klemperer Title: An Equilibrium Theory of Rationing Journal: RAND Journal of Economics Pages: 1-21 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: Committing to prices that result in rationing may be more profitable than setting market-clearing prices if customers must make sunk investments to enter the market. Rationing is ex post inefficient, but it gives more surplus to lower-value customers who are the marginal consumers the monopolists want to tempt to make investments. Similarly, a monopsonist may procure some requirements from high-cost "second sources" rather than purchase only from the lowest-cost suppliers. The model contributes to the theory of auctions with endogenous entry, and it may also help explain "efficiency wages," "second prizes," and "fair" behavior. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:1-21 Template-Type: ReDIF-Article 1.0 Author-Name: Giancarlo Spagnolo Title: Stock-Related Compensation and Product-Market Competition Journal: RAND Journal of Economics Pages: 22-42 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: I show that as long as the stock market has perfect foresight, profits are distributed as dividends, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation, making collusion supportable at any discount factor. The results hold with managerial contracts of any length. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:22-42 Template-Type: ReDIF-Article 1.0 Author-Name: Neil Gandal Author-Name: Michael Kende Author-Name: Rafael Rob Title: The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players Journal: RAND Journal of Economics Pages: 43-61 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: We examine the diffusion of a hardware/software system. For such systems there is interdependence between the hardware-adoption decisions of consumers and the supply decisions of software manufacturers. Hence there can be bottlenecks to the diffusion of the system. We consider the CD industry and estimate the (direct) elasticity of adoption with respect to CD player prices and the (cross) elasticity with respect to the variety of CD titles. Our results show that the cross elasticity is significant. Our model can be used to quantify the effect of various policies aimed at speeding up the diffusion of a system. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:43-61 Template-Type: ReDIF-Article 1.0 Author-Name: Jennifer Reinganum Title: Sentencing Guidelines, Judicial Discretion, and Plea Bargaining Journal: RAND Journal of Economics Pages: 62-81 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: The United States Sentencing Commission was created to develop federal sentencing guidelines, which restrict judicial discretion and were to found to increase the average sentence length while leaving unchanged the likelihood of resolution through plea bargaining. A game-theoretic model is developed in which a sentencing commission may impose guidelines or defer to judicial discretion; then a defendant and a prosecutor engage in plea bargaining; finally, those cases that fail to settle go to trial, where a sentence is determined according to the guidelines, if imposed or, if not, according to judicial discretion. Equilibrium behavior is consistent with the aforementioned findings. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:62-81 Template-Type: ReDIF-Article 1.0 Author-Name: Scott J. Wallsten Title: The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program Journal: RAND Journal of Economics Pages: 82-100 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: I ask whether government-industry commercial R&D grants increase private R&D. Regressing some measure of innovation on the subsidy can establish a correlation between grants and R&D, but it cannot determine whether grants increase firm R&D or whether firms that do more R&D received more grants. Using a dataset of firms involved in the Small Business Innovation Research (SBIR) program, I estimate a multi-equation model to test these hypotheses. Firms with more employees and that appear to do more research win more SBIR grants, but the grants do not affect employment. Moreover, I find evidence that the grants crowd out firm-financed R&D spending dollar for dollar. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:82-100 Template-Type: ReDIF-Article 1.0 Author-Name: Wing Suen Title: A Competitive Theory of Equilibrium and Disequilibrium Unravelling in Two-Sided Matching Journal: RAND Journal of Economics Pages: 101-120 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: I offer a competitive explanation for the rush toward early contracting in matching markets. The explanation does not rely on market power, strategic motives, or instability of the assignment mechanism. Uncertainty about workers' ability will produce inefficient matching if contracts are formed early. However, the insurance gain from early contracting may outweigh the loss from inefficient matching. If firms are risk neutral, it is the mediocre firms that will have the greatest incentive to offer early contracts. Opening up a market for early contracting will generally benefit the firms and hurt the workers. If firms are sufficiently risk averse, even the lowest-quality firms may want to offer early contracts, and a competitive equilibrium may not exist. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:101-120 Template-Type: ReDIF-Article 1.0 Author-Name: Harrison Hong Author-Name: Jeffrey D. Kubik Author-Name: Amit Solomon Title: Security Analysts' Career Concerns and Herding of Earnings Forecasts Journal: RAND Journal of Economics Pages: 121-144 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: Several theories of reputation and herd behavior (e.g., Scharfstein and Stein (1990) and Zweibel (1995)) suggest that herding among agents should vary with career concerns. Our goal is to document whether such a link exists in the labor market for security analysts. We find that inexperienced analysts are more likely to be terminated for inaccurate earnings forecasts than are their more experienced counterparts. Controlling for forecast accuracy, they are also more likely to be terminated for bold forecasts that deviate from the consensus. Consistent with these implicit incentives, we find that inexperienced analysts deviate less from consensus forecasts. Additionally, inexperienced analysts are less likely to issue timely forecasts, and they revise their forecasts more frequently. These findings are broadly consistent with existing career concern motivated herding theories. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:121-144 Template-Type: ReDIF-Article 1.0 Author-Name: Gary Biglaiser Author-Name: Claudio Mezzetti Title: Incentive Auctions and Information Revelation Journal: RAND Journal of Economics Pages: 145-164 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: We study an incentive auction in which multiple principals bid for the exclusive services, or effort, of a single agent. Each principal has private information about her valuation for these services, and the agent has private information about his disutility of providing them. We characterize the equilibrium of this auction and examine the agent's incentives to reveal information about his type. We show that the effort level taken by the agent is smaller than in the standard auction for a known agent type and greater than in the single-principal, single-agent model. Additionally, inexperienced analysts are less likely to issue timely forecasts, and they revise their forecasts more frequently. These findings are broadly consistent with existing career concern motivated herding theories. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:145-164 Template-Type: ReDIF-Article 1.0 Author-Name: Darius Palia Title: The Impact of Regulation on CEO Labor Markets Journal: RAND Journal of Economics Pages: 165-179 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: I examine empirically whether the executive labor market helps to slot managers with higher education quality into jobs where they can obtain greater returns from their human capital skills. Comparing a sample of regulated gas and electric firms with manufacturing firms, I find that utilities attract CEOs with a lower-quality education than do unregulated firms. Comparing a sample of airline firms pre- and postderegulation, airlines have CEOs with a higher-quality education postderegulation. These results suggest that the labor market slots CEOs with a lower quality of education into regulated business environments. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:165-179 Template-Type: ReDIF-Article 1.0 Author-Name: Matthew F. Mitchell Title: The Scope and Organization of Production: Firm Dynamics Over the Learning Curve Journal: RAND Journal of Economics Pages: 180-205 Issue: 1 Volume: 31 Year: 2000 Month: Spring Abstract: I introduce a Bayesian-learning model of the firm to account for a variety of empirical facts about firms. The many tasks the firm can undertake (the scope of the firm) are informationally related, so that the firm can enjoy some economies of scope from information. The model predicts changes in firm size and its comovement with firm scope that are broadly consistent with the empirical evidence. It also provides an explanation for the limits to the scope of the firm: the firm may lack information, or it may be costly to communicate the information necessary to undertake many tasks. Handle:RePEc:rje:randje:v:31:y:2000:i:Spring:p:180-205 Template-Type: ReDIF-Article 1.0 Author-Name: Chaim Fershtman Author-Name: Ariel Pakes Title: A Dynamic Oligopoly with Collusion and Price Wars Journal: RAND Journal of Economics Pages: 207-236 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: We provide a collusive framework with heterogeneity among firms, investment, entry, and exit. It is a symmetric-information model in which it is hard to sustain collusion when there is an active firm that is likely to exit in the near future. Numerical analysis is used to compare a collusive to a noncollusive environment. Only the collusive industry generates price wars. Also, the collusive industry offers both more and higher-quality products to consumers, albeit often at a higher price. The positive effect of collusion on variety and quality more than compensates for the negative effect of collusive prices, so that consumer surplus is larger with collusion. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:207-236 Template-Type: ReDIF-Article 1.0 Author-Name: Arthur Fishman Author-Name: Rafael Rob Title: Product Innovation by a Durable-Good Monpoly Journal: RAND Journal of Economics Pages: 237-252 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the lift of its products) nor to give discounts to repeat customers, the rate of product introductions is too slow -- in comparison with the social optimum. On the other hand, if the monopolist is able to artificially shorten the durability of its products or to offer price discounts to repeat customers, it can raise its profit and, at the same time, implement the social optimum. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:237-252 Template-Type: ReDIF-Article 1.0 Author-Name: Glenn Ellison Author-Name: Drew Fudenberg Title: The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry Journal: RAND Journal of Economics Pages: 253-272 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: We examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible, so users who upgrade reduce others' network benefits. One explanation involves a commitment problem: profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers. The second involves consumer heterogeneity. Here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer, and from the effect of upgrades on sales of the base good. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:253-272 Template-Type: ReDIF-Article 1.0 Author-Name: Rachel M. Hayes Author-Name: Scott Schaefer Title: Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance Journal: RAND Journal of Economics Pages: 273-293 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: Recent research suggests that implicit incentive contracts may be based on performance measures that are observable only to the contracting parties. We derive and test implications of this insight for the relationship between executive compensation and firm performance. If corporate boards optimally use both observable and unobservable (to outsiders) measures of executive performance and the unobservable measures are correlated with future firm performance, then unexplained variation in current compensation should predict future variation in firm performance. Further, compensation should be more positively associated with future performance when observable measures are less useful for contracting. Our results are consistent with these hypotheses. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:273-293 Template-Type: ReDIF-Article 1.0 Author-Name: Severin Borenstein Author-Name: James. Bushnell Author-Name: Steven Stoft Title: The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry Journal: RAND Journal of Economics Pages: 294-325 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: In an unregulated electricity generation market, the capacity of transmission lines will determine the degree to which generators in different locations compete with one another. We show, however, that there may be no relationship between the effect of a transmission line in spurring competition and the actual electricity flows on the line in equilibrium. We also demonstrate that limited transmission capacity can give a firm the incentive to restrict its output in order to congest transmission into its area of dominance. As a result, relatively small investments in transmission may yield surprisingly large payoffs in terms of increased competition. We demonstrate these effects in the context of the deregulated California electricity market. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:294-325 Template-Type: ReDIF-Article 1.0 Author-Name: Zhinqi Chen Author-Name: Thomas W. Ross Title: Strategic Alliances, Shared Facilities, and Entry Deterrence Journal: RAND Journal of Economics Pages: 326-344 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: We explore some possible anticompetitive effects of one particular type of strategic alliance--common in the airline industry, among others--that involves the sharing of production capacity. An offer to share an existing facility can allow an incumbent to persuade a potential entrant not to build its own facility. We establish conditions under which an agreement to share will be anticompetitive in the sense that, absent the agreement, a more competitive outcome (i.e., entry with new capacity) would have obtained. Such alliances can reduce welfare even if the incumbent and entrant will not be direct competitors. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:326-344 Template-Type: ReDIF-Article 1.0 Author-Name: Paul Oyer Author-Name: Scott Schaefer Title: Layoffs and Litigation Journal: RAND Journal of Economics Pages: 345-358 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: We study a possible link between two recent U.S. labor market trends: increased wrongful termination litigation and more frequent mass layoffs. We argue that if workers are more likely to sue when fired than when dismissed as part of a layoff, then increases in the expected costs to firms of such suits should induce substitution toward layoffs and away from individual firings. Our empirical analysis supports this assertion, showing that shortly after the passage of the Civil Rights Act of 1991, the methods of displacement changed differently by race but changes to the overall level of displacement were consistent across races. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:345-358 Template-Type: ReDIF-Article 1.0 Author-Name: Phillip C. Stocken Title: Credibility of Voluntary Disclosure Journal: RAND Journal of Economics Pages: 359-374 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: I examine the credibility of a manager's disclosure of privately observed nonverifiable information to an investor in a repeated cheap-talk game setting. In the single-period game no communication occurs. In the repeated game, however, the manager almost always truthfully reveals his private information provided the manager is sufficiently patient, the accounting report is sufficiently useful for assessing the truthfulness of the manager's voluntary disclosure, and the manager's disclosure performance is evaluated over a sufficiently long period. These factors may explain a manager's propensity to release private information to investors. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:359-374 Template-Type: ReDIF-Article 1.0 Author-Name: Stanley S. Reynolds Title: Durable-Goods Monopoly: Laboratory Market and Bargaining Experiments Journal: RAND Journal of Economics Pages: 375-394 Issue: 2 Volume: 31 Year: 2000 Month: Summer Abstract: Results from single-period monopoly experiments (nondurable environment) are compared with results from multiperiod experiments that have features of a durable-goods environment. Average prices were below the static monopoly benchmark price in all settings. Observed initial prices were higher in multiperiod experiments than in single-period experiments, in contrast to equilibrium predictions. Prices in multiperiod experiments tended to fall over time; there was less price cutting in market experiments than in bargaining experiments. There was substantial demand withholding by buyers in multiperiod experiments. A version of bounded rationality is a promising candidate for explaining deviations from equilibrium predictions. Handle:RePEc:rje:randje:v:31:y:2000:i:Summer:p:375-394 Template-Type: ReDIF-Article 1.0 Author-Name: Aviv Nevo Title: Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry Journal: RAND Journal of Economics Pages: 395-421 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: Traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:395-421 Template-Type: ReDIF-Article 1.0 Author-Name: Gregory S. Crawford Title: The Impact of the 1992 Cable Act on Household Demand and Welfare Journal: RAND Journal of Economics Pages: 422-450 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: I measure the benefit to households of the 1992 Cable Act in light of strategic responses by cable systems to the regulations mandated by the act. A discrete-choice differentiated-product model of household demand for all offered cable television services forms the basis of the analysis. Aggregation over households and service combinations to the level of the data permits estimation on a cross-section of cable markets from before and after the act. The results indicate that while the regulations mandated price reductions of 10-17% for cable services, observed system responses yielded no change in household welfare. Post-act changes in cable prices are responsible for most of the difference. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:422-450 Template-Type: ReDIF-Article 1.0 Author-Name: Vincenzo Denicolò Title: Two-Stage Patent Races and Patent Policy Journal: RAND Journal of Economics Pages: 450-487 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: I analyze the optimal degree of forward patent protection in a two-stage patent race framework. I compare three patent regimes, as the second innovation may be unpatentable and infringing (UI), patentable and infringing (PI), or patentable and not infringing (PN). Forward protection is highest in regime UI and lowest in regime PN. I identify a fundamental inefficiency affecting regime UI, namely that it always leads to underinvestment in the second innovation, and I note various determinants of the welfare ranking of the regimes. Specifically, strong forward protection becomes less attractive as the relative profitability of the first innovation increases and the relative difficulty of obtaining it decreases. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:450-487 Template-Type: ReDIF-Article 1.0 Author-Name: Vincenzo Denicolò Title: Two-Stage Patent Races and Patent Policy Journal: RAND Journal of Economics Pages: 488-501 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: I analyze the optimal degree of forward patent protection in a two-stage patent race framework. I compare three patent regimes, as the second innovation may be unpatentable and infringing (UI), patentable and infringing (PI), or patentable and not infringing (PN). Forward protection is highest in regime UI and lowest in regime PN. I identify a fundamental inefficiency affecting regime UI, namely that it always leads to underinvestment in the second innovation, and I note various determinants of the welfare ranking of the regimes. Specifically, strong forward protection becomes less attractive as the relative profitability of the first innovation increases and the relative difficulty of obtaining it decreases. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:488-501 Template-Type: ReDIF-Article 1.0 Author-Name: Andrew F. Daughety Author-Name: Jennifer F. Reinganum Title: Appealing Judgments Journal: RAND Journal of Economics Pages: 502-526 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: We use axiomatic and Bayesian methods to model information and decisions in a hierarchical judicial system. Axioms represent constraints that rules of evidence, procedure, and higher court review impose at the trial level; a one-parameter family of functions provides their unique continuous solution. This generates a type space for the appeals stage wherein the appellant and the appeals court each receive private signals of a yet superior court's value of the parameter, reflecting its interpretation of the law. The appeals court uses the defendant's choice about appeal to improve its estimate of the superior court's interpretation of the law. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:502-526 Template-Type: ReDIF-Article 1.0 Author-Name: David M. Cutler Author-Name: Mark McClellan Author-Name: Joseph P. Newhouse Title: How Does Managed Care Do It? Journal: RAND Journal of Economics Pages: 526-548 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than do traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:526-548 Template-Type: ReDIF-Article 1.0 Author-Name: Jan Boone Title: Competitive Pressure: The Effects on Investments in Product and Process Innovation Journal: RAND Journal of Economics Pages: 549-569 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: I analyze the effects of competitive pressure on a firm's incentives to invest in product and process innovations. I present a framework incorporating the selection and adaptation effects of product market competition on efficiency and the Schumpeterian argument for monopoly power. The effects of competition on a firm's innovations depend on whether a firm is complacent, eager, struggling, or faint, which is determined by the firm's efficiency level relative to that of its opponents. Finally, the following tradeoff is pointed out: a rise in competitive pressure cannot raise both product and process innovations at the industry level. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:549-569 Template-Type: ReDIF-Article 1.0 Author-Name: Rachel E. Kranton Author-Name: Deborah F. Minehart Title: Networks versus Vertical Integration Journal: RAND Journal of Economics Pages: 570-601 Issue: 3 Volume: 31 Year: 2000 Month: Autumn Abstract: We construct a theory to compare vertically integrated firms to networks of manufacturers and suppliers. Vertically integrated firms make their own specialized inputs. In networks, manufacturers procure specialized inputs from suppliers that, in turn, sell to several manufacturers. The analysis shows that networks can yield greater social welfare when manufacturers experience large idiosyncratic demand shocks. Individual firms may also have the incentive to form networks, despite the lack of long-term contracts. The analysis is supported by existing evidence and provides predictions as to the shape of different industries. Handle:RePEc:rje:randje:v:31:y:2000:i:Autumn:p:570-601 Template-Type: ReDIF-Article 1.0 Author-Name: Ilya Segal Author-Name: Michael D. Whinston Title: Exclusive Contracts and Protection of Investments Journal: RAND Journal of Economics Pages: 603-633 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: We consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship. Contrary to some informal claims in the literature, we find that exclusivity has no effect when all investments are fully specific to the relationship (i.e., are purely "internal"). Exclusivity does matter when investments affect the value of the buyer's trade with other sellers (i.e., have "external" effects). We examine the effects of exclusivity on investments and aggregate welfare, and the private incentives of the buyer-seller coalition to use it. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:603-633 Template-Type: ReDIF-Article 1.0 Author-Name: Drew Fudenberg Author-Name: Jean Tirole Title: Customer Poaching and Brand Switching Journal: RAND Journal of Economics Pages: 634-657 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: Firms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:634-657 Template-Type: ReDIF-Article 1.0 Author-Name: Luis M.B. Cabral Title: Stretching Firm and Brand Reputation Journal: RAND Journal of Economics Pages: 658-673 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: I consider an adverse selection model of product quality. Consumers observe the performance of the firm's products, and product performance is positively related to the firm's (privately observed) quality level. If a firm is to launch a new product, should it use the same name as its base product (reputation stretching), or should it create a new name (and start a new reputation history)? I show that for a given level of past performance (reputation), firms stretch if and only if quality is sufficiently high. Stretching thus signals high quality. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:658-673 Template-Type: ReDIF-Article 1.0 Author-Name: Samuel Kortum Author-Name: Josh Lerner Title: Assessing the Contribution of Venture Capital to Innovation Journal: RAND Journal of Economics Pages: 674-692 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: We examine the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that increases in venture capital activity in an industry are associated with significantly higher patenting rates. While the ratio of venture capital to R&D averaged less than 3% from 1983-1992, our estimates suggest that venture capital may have accounted for 8% of industrial innovations in that period. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:674-692 Template-Type: ReDIF-Article 1.0 Author-Name: Julio Rotemberg Author-Name: Garth Saloner Title: Visionaries, Managers, and Strategic Direction Journal: RAND Journal of Economics Pages: 693-716 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: Incentives for profitable innovation may be enhanced by employing a "visionary" CEO whose "vision" biases him in favor of certain projects. CEO vision changes which projects get implemented and thus affects the incentives of employees who can be compensated for their innovative ideas only when they become embodied in implemented projects. Profits may be enhanced further by letting objective managers decide which projects to investigate even though their decisions can depart from the firm's "strategy" by differing from those the CEO would have made. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:693-716 Template-Type: ReDIF-Article 1.0 Author-Name: Jay Pil Choi Author-Name: Sang-Seung Yi Title: Vertical Foreclosure with the Choice of Input Specifications Journal: RAND Journal of Economics Pages: 717-743 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: We develop an equilibrium model of vertical foreclosure with the choice of input specifications. Vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would, as an independent firm, provide a generalized input. The changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails; vertical integration allows the upstream firm to internalize the benefit of raising the rival firm's costs at the downstream level. We derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:717-743 Template-Type: ReDIF-Article 1.0 Author-Name: Gary Biglaiser Author-Name: Michael Riordan Title: Dynamics of Price Regulation Journal: RAND Journal of Economics Pages: 744-767 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: We study the dynamics of price regulation for an industry adjusting to exogenous technological progress. First, we characterize the optimal capacity path and replacement cycles in a neoclassical investment model. Second, we show that naive rate-of-return regulation, which ignores components of economic depreciation, eventually results in a deficient level of capacity due to excessively high retail prices burdened by the need to recover the underdepreciated costs of historical investments. Third, we explain how price-cap regulation leads to more efficient capital replacement decisions compared to naive rate-of-return regulation, and we show how finite price-cap horizons distort capital replacement decisions compared to optimal regulation. Finally, we interpret recent regulatory reforms in telecommunications markets. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:744-767 Template-Type: ReDIF-Article 1.0 Author-Name: Philippe Jehiel Author-Name: Benny Moldovanu Title: Auctions with Downstream Interaction Among Buyers Journal: RAND Journal of Economics Pages: 768-791 Issue: 4 Volume: 31 Year: 2000 Month: Winter Abstract: We study an auction whose outcome influences the future interaction among agents. The impact of that interaction on agent i is assumed to be a function of all agents' types (which are private information at the time of the auction). Explicit illustrations treat auctions of patents and takeover contests. We derive equilibria for second-price, sealed-bid auctions in which the seller sometimes keeps the object, and we point out the various effects caused by positive and negative impacts. We also study the effect of reserve prices and entry fees on the seller's revenue and on welfare. Handle:RePEc:rje:randje:v:31:y:2000:i:Winter:p:768-791