Transcript Azione.collettiva.1
Facoltà di Economia
U
niversità degli Studi di Parma
Cooperation and Competition Among Firms
Ch. 1 Provisional Version 2013-14 1
OBJECTIVES OF THE COURSE
OBJECTIVES OF THE COURSE Cooperative and non-cooperative solutions are central issues in real life as well as in game theory; sometimes it is a basic trade off in exchanges between firms or among individuals.
Sandler 2004: Cooperation “arises when the efforts of two or more individuals are needed to achive an outcome”.
OBJECTIVES OF THE COURSE In recent years, a rich literature and wide empirical experience have been accumulated on cooperation and competition among firms.
OBJECTIVES OF THE COURSE In recent years, a rich literature and wide empirical experience have been accumulated on cooperation and competition among firms.
The course presents a critical discussion of the essentials.
Students will acquire basic knowledge of the main theories of cooperative strategy between firms and single agents and will be able to assess feasibility of individual or collective courses of action.
Questions
• Where is cooperation more efficient than competition?
• What are the costs and benefits of cooperation?
• Do regulation and coordination costs influence cooperative results?
• Do social variables impact on the success of economic cooperation?
• What is the role of sanctioning mechanisms?
Outline
• • • • • • • • • • • • • • • • •
Definitions Forms Trends General Evidence Purposes & Motives Costs (I): Regulatory Costs Costs (II): Coordination Costs Risks Partner Selection Procedures & Norms Social Capital Trust Network Contractual Safeguards & Sanctions Structure & Governance Impact Failure & Success Institutional Role
7
Teaching Methods
• Lectures, simulations, practical tests and students’ presentations.
Reading Lists
• General Reading List • Special Topics Reading List: • 01 Interfirm Cooperation & Objectives.Benefits
• 02 Interfirm Cooperation & Costs and Failure Risks • 03 Interfirm Cooperation & Partner Selection • 04 Interfirm Cooperation & Governance Mechanisms • 05 Intefirm Cooperation & Social Structure • 06 Interfirm Cooperation & Performances • 07 Interfirm Cooperation & Developing Countries
Name/Surname
Diemmi Andrea, Mazzotti Silvia, Zucconi Damiano Lucibello Deborah, Antolini Paolo Golikov Anton, Anastasia Lukina, Lamonica Teresa, Lnica .
Pecorari Luca, Zoltar Fatima, Pinardi Maria Teresa Seritti Giada, Di Pace Stefano Pabarotto Helena, Antelmi Celeste Evbadazehi Esosa Smilies, De Pascalis Andrea Regnani Pamela, De Pieri Noemi D’Onghia Francesco, Coverta Francesco Ghellini Elena, Robuschi .
Bazzan Silvia, D'Agostino Valentina Raffaini, Pietro Preziosi ., Marin .
Alberghini Claudia, Marques Ribeiro Juliana Rattaro Ilaria, Baroni Elisa, Viappani Marina Raffaini, Pietro
Date
Thu 28.02
Thu 28.02
Fri 01.03
Fri 01.03
Wed 6.03
Wed 6.03
Thu 07.03
Thu 07.03
Fri 08.03
Fri 08.03
Wed 13.03
Wed 13.03
Topic
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02 .
01 .
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07 .
02 03 03
Paper
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Das & Teng 2000 .
Inkpen, 1998 .
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Sim & Ali .
Das & Teng 2000 .
Franco&Gussoni 2010 Dacin et al. 1997 Thur 14.03
Thur 14.03
Fri 15.03
Fri 15.03
07 07 Wed 20.03
Wed 20.03
Thu 21.03
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03 .
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Pietrobelli & Rabellotti 2004 Dacin et al. 1997
Why and How Strategic Alliances Today
Cisco
Type of interactions between firms
a) Competitive relationships (market forms) b) Proprietary relationships (acquisitions, groups of firms) c) Exchange relationships (contractual transactions) d) Cooperative relationships (L-T agreements, joint ventures, strategic alliances, etc) 12
Definition of Strategic Alliance
(Yoshino and Rangan, 1995).
• A strategic alliance involves at least two partner firms that: • remain legally independent after the alliance is formed; • share benefits and managerial control over the performance of assigned tasks; • and make continuing contributions in one or more strategic areas, such as technology or products 13
Costs & Risks
a.
Research indicates that the number of alliances is growing rapidly , at an average rate of 25 percent per year (Parise, S. & Casher, A., 2003).
b.
Participation in an alliance may require a firm to reorganize, reduce, or terminate other business relations in order to oblige a new partner’s interests. This post-decision adjustment leads to foreclosures of some future business opportunities and their associated loss of potential benefits and profits (Todeva Knoke 2005) c.
Firms in alliances often try to get ahead of their partners through learning races , which may result in the loss of firm-specific knowledge for some firms (Bleeke and Ernst, 1995; Hamel, 1991; Teng&Das 2008) d.
“The essentially fickle and (Das&Teng 1998) tentative nature of partner cooperation should not be overlooked” because it renders many strategic alliances “fundamentally self-defeating, unstable, and transitional in nature” 14
e)
Costs & Risks
A collaborative agreement may terminate through complete project dissolution, either before or after achieving its formal objectives; by a joint venture’s acquisition by one of its partners; or through an organizational merger of the parent firms. Researchers have investigated several factors that may affect the survival rates and end states of various types of alliances (Todeva & Knoke 2005).
f) Most analysts found high levels of strategic alliance instability and dissolution, with failure rates approaching 50 percent 1988b; Kogut, 1988; Dacin et al., 1997).
(Harrigan, g) Alliances in the technologically volatile telecommunications industry exhibit an “alarming tendency to fall apart due to members ” (Curwen, 1999).
fickle behaviour of 15
Costs & Risks
h) Bleeke and Ernst (1993) used unpublished reports and interviews with insiders of top companies in the USA, Europe and Japan to determine that, among 49 cross-border alliances, both.
objectives and recovered their financial capital costs.
51 percent were successful for both partners while 33 percent resulted in failure for Success meant that the partners achieved their own strategic i) An event history analysis of 186 joint ventures among US and Japanese electronics firms between 1979-1988 found a (Park and Ungson, 1997).
43 percent dissolution rate, with an average life span of less than five years j) This overall lack of success is probably due in large measure due to the frequent tensions between competition and co-operation inherent in alliances (Bharat and Tarun, 2004).
16
Strategic alliance forms
(Todeva & Knoke 2005) ( or “hybrids” combining varying degrees of market interaction and bureaucratic integration (Williamson, 1975).
• (1) Hierarchical relations: through acquisition or merger, one firm takes full control of another’s assets and coordinates actions by the ownership rights mechanism.
• (2) Joint ventures: two or more firms create a jointly owned legal organization that serves a limited purpose for its parents, such as R&D or marketing.
• (3) Equity investments: a majority or minority equity holding by one firm through a direct stock purchase of shares in another firm.
• (4) Cooperatives: a coalition of small enterprises that combine, coordinate, and manage their collective resources.
17
Strategic alliance forms
(Todeva Knoke 2005) (or “hybrids” combining varying degrees of market interaction and bureaucratic integration (Williamson, 1975).
• (5) R&D consortia: inter-firm agreements for research and development collaboration, typically formed in fast-changing technological fields.
• (6) Strategic cooperative agreements: contractual business networks based on joint multi-party strategic control, with the partners collaborating over key strategic decisions and sharing responsibilities for performance outcomes.
• (7) Cartels: large corporations collude to constrain competition by cooperatively controlling production and/or prices within a specific industry.
• (8) Franchising: a franchiser grants a franchisee the use of a brand name identity within a geographic area, but retains control over pricing, marketing, and standardized service norms.
• (9) Licensing: one company grants another the right to use patented technologies or production processes in return for royalties and fees.
18
Strategic alliance forms
(Todeva Knoke 2005) (or “hybrids” combining varying degrees of market interaction and bureaucratic integration (Williamson, 1975).
• (10) Subcontractor networks: inter-linked firms where a subcontractor negotiates its suppliers’ long-term prices, production runs, and delivery schedules.
• (11) Industry standards groups: committees that seek the member organizations’ agreements on the adoption of technical standards for manufacturing and trade.
• (12) Action sets: short-lived organizational coalitions whose members coordinate their lobbying efforts to influence public policy making.
(GIE in France) • (13) Market relations: arm’s-length transactions between organizations coordinated only through the price mechanism .
19
Motives for organizations to engage in alliance formation ( Agarwal and Ramaswami, 1992; Auster, 1994; Doz and Hamel, 1999; Doz et al., 2000; Harrigan, 1988a; Hennart, 1991; Lorange and Roos, 1993; Zajac, 1990) a) Market seeking; b) Acquiring means of distribution; c) Gaining access to new technology, and converging technology; d) Learning and internalization of tacit, collective and embedded skills; e) Obtaining economies of scale; f) Achieving vertical integration, recreating and extending supply links 20
How to mantain strategic alliances over time?
(Alliances AMA) 21
Motives for organizations to engage in alliance formation g) Adjust to environmental changes; h) Diversifying into new businesses; i) Restructuring, improving performance; j) Cost sharing, pooling of resources; k) Developing products, technologies, resources; l) Risk reduction and risk diversification; m) Developing technical standards; 22
Motives for organizations to engage in alliance formation n) Achieving competitive advantage; o) Cooperation of potential rivals, or pre-empting competitors; p) Complementarity of goods and services to markets; q) Co-specialization; r) s) Overcoming legal/regulatory barriers; and Legitimisation, bandwagon effect, following industry trends.
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Ranking of the importance of specific factors for strategic alliances 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Communication between partners Close senior management ties Clearly understood roles Frequent performances feedback Partner selection Clearly defined objectives Senior management commitment Sharing risks and resouces Alignment of culture Integration of information system Relationships building Thorough planning Previous alliance experience Clear payback timelines Day-to-day attention
Interfirm Cooperation
Empirical Evidence
25
Evidence
• Strategic alliances contribute to superior production performance by the parents. Research on 142 Canadian biotechnology startup firms from 1991-1996 found that their initial performances were enhanced by establishing alliance networks that provided access to “diverse information and capabilities redundancy, conflict, and with minimum costs of complexity,” gave more opportunities to learn from established rivals, but avoided risky intra-alliance rivalries (Baum et al., 2000, p. 287).
26
Evidence
• In particular, innovativeness the startups’ alliance networks boosted their as measured by rates of patenting and R&D growth.
• A comparative study of alliance networks among 138 steel and 130 semiconductor firms from 1990-1994 found that the influence of network characteristics on firm performance varied with industry contexts (Todeva & Knoke 2005) • In another analysis of semiconductor firms from 1985-1991, Stuart (2000) investigated the impact of alliances on innovation rates and economic growth . He measured innovation as the number of patents granted and growth as annual semiconductor sales.
27
Evidence
• Among alliances between firms within same industry, a bigger stock price jump occurred for technical than for marketing agreements, suggesting “that partnering firms from the same industry can better take advantage of technological complementarities ” (Chan et al., 1997).
• Multiple recurrent R&D projects among members of an alliance network may create markets (Vonortas, 2000).
opportunities for collusion by firms that simultaneously compete across multiple product 28
Reading Lists
• General Reading List • Special Topics Reading List: • 01 Interfirm Cooperation & Objectives.Benefits
• 02 Interfirm Cooperation & Costs and Failure Risks • 03 Interfirm Cooperation & Partner Selection • 04 Interfirm Cooperation & Governance Mechanisms • 05 Intefirm Cooperation & Social Structure • 06 Interfirm Cooperation & Performances • 07 Interfirm Cooperation & Developing Countries
R&D Partnership (1960-1998) Source: Hagedoorn & van Kranenburg 2003 30
Share (%) of Joint ventures in R&D partnerships (1960-1990) Source: Hagedoorn 2002 31
The share (%) of high-tech, medium-tech and low tech industries in R&D partnerships (1960-1990) Source: Hagedoorn 2002 32
The share (%) of high tech industries in R&D partnerships (1960-1998) Source: Hagedoorn 2002 33
The share (%) of international R&D agreements in R&D partnerships (1960-1998) Source: Hagedoorn 2002 34
Distribution of R&D partnerships by regions (1960-1998) Source: Hagedoorn 2002 35
Distribution of R&D partnerships by regions (1960-1998) Source: Hagedoorn 2002 36
Top ten firms in pharmaceutical biothcnology (no. of partnerships in different periods) Source: Roijakkers & Hagedoorn 2005 37
R&D Partnerships in Pharmaceutical Biotechnology (1975-79) Source: Roijakkers & Hagedoorn 2005 38
R&D Partnerships in Pharmaceutical Biotechnology (1980-84) Source: Roijakkers & Hagedoorn 2005 39
R&D Partnerships in Pharmaceutical Biotechnology (1985-89) Source: Roijakkers & Hagedoorn 2005 40
R&D Partnerships in Pharmaceutical Biotechnology (1990-94) Source: Roijakkers & Hagedoorn 2005 41
R&D Partnerships in Pharmaceutical Biotechnology (1990-94) Source: Roijakkers & Hagedoorn 2005 42
Tecnological Agreements Between Firms in Most Advanced Countries
a) Germany Germany with UK France Neetherland Italy Usa Japan 1980-84 9 11 10 5 51 22 1985-89 1990-94 29 26 21 21 25 13 108 33 16 7 163 41
43
b) UK UK with Germany France Neetherland Italy Japan Usa 1980-84 1985-89 1990-94 9 10 9 5 117 69 27 31 27 13 159 139 18 24 8 8 121 140
44
c) France France with Germany UK Neetherland Italy Japan Usa 1980-84 1985-89 9 10 5 14 23 58 24 31 24 17 27 69 1990-94 21 24 15 14 27 100
45
Long Term Cooperation with Suppliers (% of the buyer firms)
Industries Traditional Scale Specialized Science based Average % of firms 70 73 75 57 72
Source: Arrighetti 2001 46
On which alliance do you bet? (and why?) Ricoh & Heidelberg
https://www.youtube.com/watch?v=lM_Vi7fSS3E
Cisco & Wipro
https://www.youtube.com/watch?v=MBqqKj3jFLg
Consortia by Industries in Italy (2003 ) • • Agriculture 7,8 • Mining/General Buildings 12,8 • Manufacturing 8,6 • Trade/Retail • Transport • Multi-industry 14,3 9,2 • Services • Training, Medical Services 5,8 • Utility 3,7 10,3 27,5
TOTAL 100,0
Source: Arrighetti&Lasagni 2004 48
Firms that have subscribed agreements or entered consortia by size in 1997 (in %)
Employees 1-9 10-19 20-49 50-99 100-249 >=250 Total % 4,8 14,9 19,8 25,6 29,1 39,3 5,5
Fonte: Istat (2000) 49
Why and how to build up a ‘global’ partnership?(11.45)
Cisco 50
Firms that have subscribed agreements or entered consortia by size in 1997 by regions in 1997 (in %)
Regions Piemonte Valle d’Aosta Lombardia Liguria Trentino-Alto Adige Veneto Friuli-Venezia Giulia Emilia Romagna Toscana Marche % 5,2 5,7 6.0 4,7 5,8 8,0 7,1 7,4 5,9 5,7
51
Umbria Lazio Abruzzo Molise Campania Puglia Basilicata Calabria Sicilia Sardegna Total
Source: Istat (2000)
5,2 5,4 3,6 3,9 3,3 4,0 3,6 2,6 3,0 5,7 5,5
52
Skills integration actions
Actions
Recruiting Additional Employees Entering into Research Agreements with Universities and Research Centers Developing Deeper Relationships with Existing Suppliers Developing Agreements with Other Firms Acquiring Firms that Possess the Required Know-how Other (Internal R&D; Consulting Services; etc.) Fonte:Assolombarda 2011
In Italy 34 24 19 25 17 3 Abroad 23 10 11 22 16 3 Total 57 34 30 47 33 6
53
Difference in the Relative Occurrence (%) of some Organizational Features in Firms with Collaborative Relationships in Comparison with the Rest of the Business (2000)
Size Pc -10 Emp 12,4 10-19 1,7 20-49 50-99 1,4 1,0 E-mail 24,1 11,8 4,4 4,1 Web 13,9 11,6 4,9 2,6 RD 13,7 12,6 9,8 16,2 Source: Istat (2000) 54
Difference in the Relative Occurrance (%) of some Organizational Features in Firms with Collaborative Relationships in Comparison with the Rest of the Business (2000)
Size Product Innov. -10 Empl. 17,0 Process Innov. 12,1 Training 11,7 10-19 20-49 50-99 17,6 16,6 13,5 16,0 13,8 4,8 9,1 4,9 8,5 Source: Istat (2000) 55
Differences in Relative Employment Trends (1999-2000) in Firms with Collaborative Relationships in Comparison with the Rest of the Business (2000)
Firms (Total) - 0,5 = -6,7 + 6,2 Source: Istat (2000) 56
• Innovation and different forms of creative collaboration • http://www.ted.com/talks/charles_leadbeate r_on_innovation.html
Purposes & Reasons for Interfirm Cooperation
58
Source of Returns of Cooperation Among Firms
• • • •
Economies of scale
(Contractor e Lorange 1988 )
Risk reduction
(Aloysius 1999)
Collusion
( van Wegberg 1995)
Transaction costs decrease
(Pisano 1990; Narula 1998)
59
• • •
Internalization of technological externalities
(Spence 1984, Katz 1986
Tacit knowledge and resource complementarity
(Kogut 1988, Buckley e Casson 1998)
Market incompleteness
60
Economies of scale
61
Economies of scale
:
There are economies of scale when production costs decrease as production volumes increase 62
C
Economies & dis-economies of scale: Increasing returns
AC 1
C
Economies & dis-economies of scale: Constant returns
AC 2
C
Economies & dis-economies of scale: Increasing, constant and decreasing returns
AC 3
C
Economies & dis-economies of scale: Increasing, constant and decreasing returns
AC 2 AC 1 AC 3
C
Economies & dis-economies of scale: Total average costs
AC tot AC 2 AC 1 AC 3
C
Economies & dis-economies of scale :
Q 1 Q 2 Q 3 Q 4
68
Q
C
Economies & dis-economies of scale Increasing Returns
Q 1 Q 2 Q 3 Q 4
69
Q
C
Economies and dis-economies of scale: Constant Returns
Q 1 Q 2 Q 3 Q 4
70
Q
C
Economies and dis-economies of scale: Decreasing Returns
Q 1 Q 2 Q 3 Q 4
71
Q
Sources of Economies of Scale
72
Sources of Economies of Scale
• Fixed costs 73
Sources of Economies of Scale
• Fixed costs • Specialization in functional departments 74
Sources of Economies of Scale
• Fixed costs • Specialization in functional departments • Setup costs 75
Sources of Economies of Scale
• Fixed costs • Specialization in functional departments • Setup costs • Law of large numbers and stock costs 76
Sources of Dis-economies of Scale
77
Sources of Dis-economies of Scale
• Transport costs of raw material (Multi-plant Organization) 78
Sources of Dis-economies of Scale
• Transport costs of raw material (Multi-plant Organization) • Retail costs of consumer goods 79
Sources of Dis-economies of Scale
• Transport costs of raw material (Multi-plant Organization) • Retail costs of consumer goods • Supply costs of specialized inputs (i.e. skilled labor ) 80
Sources of Dis-economies of Scale
• Transport costs of raw material (Multi-plant Organization) • Retail costs of consumer goods • Supply costs of specialized inputs (i.e. skilled labor ) • Costs of hierarchy (internal coordination) 81
Economies of scale and size costraints
Size costraints affect firm efficency in presence of increasing returns.
82
Example
• Firm 1 produces input
α α
that goes into the final product A. The quantity produced of
α
(function of final demand A) is
q 1
and the cost is
c 1
.
83
C C 1
Economies and dis-economies of scale
AC
α
t
ot Q 1
84
Q
α
The quantity q1 is placed in the descending tract of AC, but demand constraints do not allow choice of quantities to the right side of q1 and thus cost reduction .
85
Alternatives
• Expansion of the demand and growth in size • Arrest of production and resort to the market • Cooperation between firms 86
C
Economies and dis-economies of scale
AC α
t
ot C Q
87
Q
α
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C Q 1 Q
88
Q
α
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C Q 1 Q 2 Q
89
Q
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C 4 Q 1 Q 2 Q 3 Q
90
Q
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C 4 Q 1 Q 2 Q 3 Q 4
91
Q
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C 4 Q 1 Q 2 Q 3 Q 4 Q 5
92
Q
C C 1
Economies and dis-economies of scale Hp JV
AC α
t
ot C 4 Q 1 Q 2 Q 3 Q* 4
93
Q
Economies of scale and cooperation among firms Setup of common structures (consortia, joint ventures, etc.) to aggregate the demand of the participants and to enhance economies of scale. 94
Economies of scale and cooperation among firms: expected benefits • Reduction of average production costs • Guarantee of supply 95
Economies of scope
There are economies of scope (variety) when producing jointly two or more goods leads to benefits in terms of productivity or efficiency 96
Crude Oil Refinery
Crude Oil Refinery
Crude Oil Refinery
Consorzio Parmigiano Reggiano
(Production & Marketing)
Economies of scope
C(q 1 ,q 2 ) < [C(q 1 ,0) + C(0,q 2 )] Subadditive cost function C(q 1 ,q 2 ) = [C(q 1 ,0) + C(0,q 2 )] Additive cost function C(q 1 ,q 2 ) > [C(q 1 ,0) + C(0,q 2 )] Superadditive cost function
101
Economies of Scope
Y(q 1 ,q 2 ) < [Y(q 1 ,0) + Y(0,q 2 )] Subadditive production function Y(q 1 ,q 2 ) = [Y(q 1 ,0) + Y(0,q 2 )] Additive production function Y(q 1 ,q 2 ) > [Y(q 1 ,0) + Y(0,q 2 )] Superadditive production function
102
C(q)
Economies of scope Subadditive cost function
C(q 1 ,0) 0 q’ 1 q 1 q 2
103
C(q)
Economies of scope Subadditive cost function
C(q 1 ,0) C(0,q 2 ) 0 q’ 2 q 2 q’ 1 q 1
104
C(q)
Economies of scope Subadditive cost function
C(q 1 ,0) C(0,q 2 ) 0 q’ 2 q 2 q’ 1 q 1
105
C(q)
Economies of scope Subadditive cost function
C(q 1 ,0) C(0,q 2 ) 0 q’ 2 q 2 q’ 1 q 1
106
C(q)
Economies of scope Superadditive cost function
C(q 1 ,0) C(0,q 2 ) 0 q’ 2 q 2 q’ 1 q 1
107
C(q)
Economies of scope Additive cost function
C(q 1 ,0) C(0,q 2 ) 0 q’ 2 q 2 q’ 1 q 1
108
Example (1)
• For example, Immunex has used its expertise in immunology, particularly in cytokine research, to develop Leukine, a product for oncology. Moreover, levering the knowledge gained from the development of Leukine into the field of rheumatology allowed Immunex to develop its blockbuster drug Enbrel. Both the oncology and the rheumatology subfields involve cytokine research. Thus, Immunex was able to expand its subfields of therapeutic indications based on economies of scope derived from its initial research in cytokine.
More recently, Immunex has expanded new entrant firm participates [52].(Rothaermel 2002) into the cardiovascular subfield with Nuvance for the treatment of asthma and Novantrone for the treatment of multiple sclerosis, again driven by economies of scope derived from its expertise in immunology.2 Thus, we proxied a startup’s economies of scope through inclusion of a count variable representing the number of biotechnology subfields in which a
Alternatives
• Expansion of the demand and growth in size • Arrest of production and resort to the market (to sell, not to buy) • Cooperation between firms 110
Economies of specialization
Definition: Economies of specialization
• The economies of specialization increase firm efficiency (cost savings) by means of extension the division of labor between the firms.
C
Learning effect
AC 1
113
T
Comparative Advantages
• Trade allows for division of labor between firms
Economies of specialization and cooperative agreements
• Hp.
• Greater the economies of specialization, higher the likelihood of establishing cooperative agreements between firms (joint ventures)
Economies of specialization and cooperative agreements
• Firm 1 produces the final good Y in an quantity equal to x1.
• In order to obtain Y firm 1 requires two intermediate inputs (A and B) which produces internally (with costs ACA and ACB).
• Production of intermediate inputs A and B coordination costs equal to ACc.
requires
C
Economies of specialization and cooperative agreements
ACa ACb ACc Q
C
Economies of specialization and cooperative agreements
ACa x1 ACb ACc Q
C
Economies of specialization and cooperative agreements
ACa ACb1 ACa1 x1 ACb ACc Q
Economies of specialization and cooperative agreements
• As a result of an increase in demand (x1 to 2x1) three alternatives are available: • Alt I) firm 1 continues to produce internally inputs A and B
Economies of specialization and cooperative agreements
C ACa ACa2 ACc ACb1 ACb2 ACa1 ACb Q x1 2x1
Economies of specialization and cooperative agreements
• Alternative 1 determines a significant increase in the average total costs since: • (ACa1+ACb1+ACc)<(ACa2+ACb2+ACc)
Economies of specialization and cooperative agreements
• Alternative II • Increasing demand is captured by Firm 2 (new entrant) that produces a cost equal to those of Firm 1.
The average total costs of production of x1 are equal to those of 2x1
Economies of specialization and cooperative agreements
C ACa ACb1 ACa1 ACb ACc Q x1 2x1
Economies of specialization and cooperative agreements
• Alternative III • Firms 1 and 2 create a joint venture (Firm 3; exploiting economies of specialization) producing only input B.
• Firms 1 and 2 acquire input B from Firm 3.
• Firms 1 and 2 stop the production of B.
Economies of specialization and cooperative agreements
C ACa ACb3 ACa1 ACb ACc Q x1 2x1
Conclusions
• (ACa1+ACb1+ACc)>(ACa1+ACb3+ACc) • (ACa1+ACb1+ACc)-(ACa1+ACb3+ACc)
= E s
• = Economies of specialization •
In sum:
• The emphasis of the division of labor between firms and the exploitation of economies of scale increase the opportunities for cooperative agreements
Risk sharing
128
Risk sharing
Sharing the costs of highly uncertain initiatives between several parties aligns actual profit to expected profit.
129
Example 1
• Consider n research projects. Each project is carried out by a single firm. The cost of each project is identical. The expected payoff is 0.5
In the case of success: i = 1 with p = 0.5
failure: i = 0 with p = 0.5
130
Individual action
=1 or =0 131
Collective Action
• =1/n (Σ i,..n)=1/6(3)=0,5 132
Sic
Risk and Cooperation: Advantages
• The actual profit approximates the expected profit: higher is the number of polled projects (n) , higher is the likelihood to equate the expected payoff Example: Oil industry (drilling projects).
135
Oil Drilling
Oil Drilling
Oil Drilling
Collusion and Cooperation Between Firms
139
Definition: Collusion
Tacit or explicit agreements between firms aimed to reduce competition and increasing profits .
140
C P
Collusion payoff: Cartel
A) Representative firm MC AC q (Firm)
141
C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC p c AC q (Firm) Q ( Industry )
C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC p c AC q (Firm) D Q ( Industry )
C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC p c AC q (Firm) MR D Q ( Industry )
C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC p c AC q (Firm) MR D Q ( Industry )
p c C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q (Firm) MR Q c D Q ( Industry )
p c C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q c q (Firm) D MR Q c Q ( Industry )
p m p c C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q c q (Firm) MR Q c D Q ( Industry )
p m p c C P
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q c q (Firm) Q m MR Q c D Q ( Industry )
C P p m p c
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q c q (Firm) Q m MR Q c D Q ( Industry )
C P p m p c
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q m q c q (Firm) Q m MR Q c D Q ( Industry )
C P p m p c
Collusion payoff: Cartel
A) Representative firm B) Industry MC MC AC q m q c q (Firm) Q m MR Q c D Q ( Industry )
Collusion and Cooperation Between Firms: Benefits/Effects
• Supernormal profits • Uncertainty reduction • Reduction of competitive pressures • Reducing the costs of competitive strategies • Decreasing consumer surplus 153
Transaction
Costs
154
Definition: Transaction Costs
Transaction costs are costs incurred by the parties to build up safeguards to ensure that the benefits expected from the transaction are met.
155
Transaction Costs
• Costs of: • Singling out the minimun price in the market • Negotiating the safeguards • Writing a contract
Markets & Contracts
• Classical contract law 157
Markets & Contracts
• Classical contract law • Perfect information of the agents on the content of the exchange and future contingencies; • 158
Markets & Contracts
• Classical contract law • Perfect information of the agents on the content of the exchange and future contingencies; • Reduction to the Present: all future contingencies are foreseen and transferred in the contract; 159
Markets & Contracts
• Classical contract law • Perfect information of the agents on the content of the exchange and future contingencies; • Reduction to the Present: all future contingencies are foreseen and transferred in the contract; • Discreteness: any exchange is distinct from the preceding and the following one. Agents have not obligations outside the contract; 160
Markets & Contracts
• Classical contract law • Perfect information of the agents on the content of the exchange and future contingencies; • Reduction to the Present: all future contingencies are foreseen and transferred in the contract; • Discreteness: any exchange is distinct from the preceding and the following one. Agents have not obligations outside the contract; • Irrelevance of the identity of the parties 161
Markets & Contracts
• • • • • • Classical contract law Perfect information of the agents on the content of the exchange and future contingencies; Reduction to the Present: all future contingencies are foreseen and transferred in the contract; Discreteness: any exchange is distinct from the preceding and the following one. Agents have not obligations outside the contract; Irrelevance of the identity of the parties The trade agreement is time constrained 162
Markets & Contracts
• Classical contract law • Perfect information of the agents on the content of the exchange and future contingencies; • Reduction to the Present: all future contingencies are foreseen and transferred in the contract; • Discreteness: any exchange is distinct from the preceding and the following one. Agents have not obligations outside the contract; • Irrelevance of the identity of the parties • The trade agreement is time constrained • Disincentive to the use of third parties (arbitration, courts, etc.) 163
Markets & Contracts
• Neo-classical contract law 164
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; 165
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; • High cost of reduction to the present; 166
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; • High cost of reduction to the present; • Partial formalization of the contract; 167
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; • High cost of reduction to the present; • Partial formalization of the contract; • Identification of mechanism of conflict resolution; 168
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; • High cost of reduction to the present; • Partial formalization of the contract; • Identification of mechanism of conflict resolution; • Introduction of a third party (civil court, arbitration).
169
Markets & Contracts
• Neo-classical contract law • Uncertainty (bounded rationality) of the agents about future contingencies; • High cost of reduction to the present; • Partial formalization of the contract; • Identification of mechanism of conflict resolution; • Introduction of a third party (civil court, arbitation).
•
↓
• Relational contract (hierarchy) 170
Determinants of Transaction Costs
• Uncertainty (Bounded Rationality) • Opportunism • Assets Specificity 171
Markets & Contracts
• “Transaction costs increase steeply when contracts are incomplete, that is, when they do not specify fully the actions of each party in every contingency” (Caloghirou et al 2003) . • Frequent causes of incomplete contracts are: • 1) small number bargaining usually as a result of high asset specificity (Hart and Holmstrom, 1987; Williamson, 1975). • 2) exchanges concerning non-tradable assets (i.e. intangible resources: internal knowhow; intellectual capital; organization resources, etc). The most formidable intangible asset is technological knowledge. Such knowledge can be explicit, in the form of a patent or design, or implicit (tacit) in the form of know-how shared among the firm's employees (Caloghirou et al 2003)
Alternatives to the use of the market
(1) Acquisition (2) Collective action among firms 173
Acquisition : Impact
• Decrease of transaction costs • Increase of management and administrative costs (dis-economies of vertical integration) 174
Comparative Governance Costs
(Williamson 1985) • Comparison of costs of using the market or the hierachy • • • •
k
: degree of asset specificity
C c
: costs of hierarchical coordination
C t
: transaction costs
G = C c - C t C c > 0; C t
0
175
Comparative Governance Costs
(Williamson 1985) Cc Ct
G
k’ 0 k 176
Comparative Governance Costs
(Williamson 1985) Ct Cc
G
0 Market k’ Hierarchy (Firm) k 177
Comparative Governance Costs
(Williamson 1985) • Where the degree of asset specificity is low, hierarchy costs are always higher than transaction costs.
• Increasing the degree of assets specificity, hierarchical coordination costs remain constant, while transaction costs increase.
• The intersection of the
G
with k at point k' denotes the "boundary" of the firm: it is profitable to locate inside the firm a transaction that it was previously efficient to implement through the market .
178
Comparative Governance Costs (Williamson 1985) • To complete the analysis we need to compare average cost of internal production and external supply.
• C = C(q) c - C(q) s • C(q) c : cost of production of the input in the integrated firm C • C(q) s : cost of production of the input in the specialized supplier S 179
Comparative Governance Costs
(Williamson 1985) Ct Cc
G
C
k’ 0 k Market Hierarchy (Firm) 180
Comparative Governance Costs
(Williamson 1985) • With regard to very low degrees of specificity, resort to the market will be more efficient since S, unlike C, can exploit economies of scale producing for different buyers, other than C.
• In the transactional scheme, in the choice “make or buy” concerning commodities or homogeneous goods, it is profitable to make use of the market.
181
Comparative Governance Costs
(Williamson 1985) • Increasing the specificity of the input, potential economies of specialization are reduced until, for very specific goods, the production costs of an outside producer approximate the production costs of the integrated firm (
C
tends asymptotically to 0). 182
Comparative Governance Costs
(Williamson 1985) • The horizontal sum of C+ G tends to move the firm’s boundary to right 183
Ct Cc Comparative Governance Costs (Williamson 1985)
G+
C
G
0 Market
C
k’ k* Hierarchy (Firm) k 184
Comparative Governance Costs
(Williamson 1985) • The segment k *- k ‘ stresses the likelihood of intermediate (hybrid) organization (joint ventures, consortia, etc.).
• Asset specificity is high so resorting to the hierarchy is advisable • At the same time the possibility of reducing production costs suggests adopting market solutions 185
Ct Cc Comparative Governance Costs (Williamson 1985)
G+
C
G
0 Market
C
k’ k* Hierarchy (Firm) k 186
“Hybrids”
• Equity joint venture • Non-equity joint venture 187
Economies of specialization and cooperative agreements
C ACa ACb3 ACa1 ACb ACc Q x1 2x1
Main features
• Absence of diseconomies of vertical integration • Commonly shared (not hierarchical) control • Autonomous mechanisms of regulation and incentive • Ex ante sharing of the benefits • Mutual Hostages 189
Cooperation between firms and transaction costs : Benefits • Decrease of transaction costs • Independent development of non-tradable ‘intangible’ resources • Actual governance of exchanges that cannot be placed both in the hierarchy and in the market 190
Technological Externalities
191
Spillovers/Externalities
• Three types of spillovers have been considered by economists (Jaffe, 1996): •
“Pecuniary Spillovers
affect embodied technology and occur because R&D-intensive inputs and outputs are not priced at their fully hedonic (quality-adjusted) value, i.e. the producer of a new or improved product or process is not able to set a price that fully captures the incremental benefits flowing to the buyers.
Spillovers/Externalities
•
Knowledge (Tecnological) Spillovers
reflect the transfer of knowledge (not necessarily embodied in a product or service) from one agent to another without adequate compensation. Knowledge spillovers are either horizontal or vertical. Horizontal spillovers describe knowledge flows between competitors. Vertical knowledge spillovers describe knowledge flows between firms in different industries. • .
Spillovers/Externalities
•
Network Spillovers
are present when the successful implementation and economic value of a new technology is strongly dependent on other complementary technologies. Generally speaking, network spillovers are present if by undertaking an R&D project a firm creates a positive externality to others interested in complementary projects by raising their expected commercial payoff. • • All three kinds of spillovers are supposed to lead to market failure by adversely affecting the incentives of individual firms to invest in R&D (Caloghirou et al 2003) .
Knowledge (Tecnological) Spillovers
Benefits from innovation
• Innovation and competition • Innovation and appropriability • Technological spillover • Technological externalities 195
Impact of spillovers
• Reduction of incentive to innovate • Reduction of R&D expenditures • Misallocation of R&D resources • Decrease of competiveness of industry/territory 196
Interfirm cooperation
• Interfirm research projects • Intra-industry research consortia • Research strategic alliances • Joint venture 197
• •
SEMATECH
•
SEMATECH History (Sematech website)
Acceleration: SEMATECH achieves its first mission
SEMATECH's history traces back to 1986, when the idea of launching a bold experiment in industry-government cooperation was conceived to strengthen the U.S.
semiconductor industry.
The consortium, called SEMATECH (SEmiconductor MAnufacturing TECHnology), was formed in 1987, when 14 U.S. based semiconductor manufacturers and the U.S. government came together to solve common manufacturing problems by leveraging resources and sharing risks.
Austin, Texas, was chosen as the site, and SEMATECH officially began operations in 1988, focused on improving the industry infrastructure, particularly by working with domestic equipment suppliers to improve their capabilities.
•
By 1994, it had become clear that the U.S. semiconductor industry—both device makers and suppliers—had regained strength and market share; at that time, the SEMATECH Board of Directors voted to seek an end to matching federal funding after 1996, reasoning that the industry had returned to health and should no longer receive government support. SEMATECH continued to serve its membership, and the semiconductor industry at large, through advanced technology development in program areas such as lithography, front end processes, and interconnect, and through its interactions with an increasingly global supplier base on manufacturing challenges.
• •
http://www.sematech.org/ http://www.youtube.com/watch?v=dOwoyVcXVJw
SEMATECH
• • • • •
Globalization: Adding international membership
The International 300 mm Initiative (I300I) was formed as a subsidiary of SEMATECH in 1995, with seven non-U.S. companies and six U.S. companies cooperating on 300 mm tool standards and specifications; in 1998 five of those international companies opted to participate in more of the consortium's programs through a subsidiary called International SEMATECH, and then ultimately made the decision to join SEMATECH as full members. In 2000, SEMATECH completed its first year of operations as a unified global consortium, with members from Asia, Europe, and the U.S., dedicated to cooperative work on semiconductor manufacturing technology.
Collaboration: Driving innovation and industry consensus
Over the years, SEMATECH’s R&D model has continuously evolved to incorporate broader industry participation—including equipment and materials suppliers, fabless companies, foundries, and packaging/assembly companies—as well as collaboration with universities, regional governments, and other consortia in order to foster technology innovation and accelerate the commercialization of new materials and nanostructures for future transistors.
SEMATECH
• • •
Main outcomes
We reduce cost and risk We are a companion to members' R&D processes and help develop aspects of technology faster and cheaper than members could on their own by reducing options to the most workable solutions. Rather than each member company funding solutions individually, we enable members, using what they learn at SEMATECH, to spend more resources on developing their own competitive advantage.
• • •
We deliver exclusive benefits to our members First-to-market solutions – Members get full and detailed, actionable data.
Cost avoidance – Members avoid spending the full R&D costs of ultimately unworkable solutions and lower their learning curve for new processes.
•
Inside track – Members receive early evaluation of new materials and technologies without contamination and equipment risk in their fabs.
Expected benefits
• Internalization of externalities • Recovery of the incentive to innovate • Raising the level of investment 201
Tacit knowledge and resource complementarity
202
Formal and tacit knowledge
• Formal knowledge : based on information that is encoded or publicly available. It is standard knowledge. It is transferable and is independent from the context in which it is used. 203
Formal and tacit knowledge
• Tacit knowledge: Informal, not encrypted or even unencrypted knowledge. It is the result of accumulation of experiences in a specific organizational context. Is 'rooted' within the organization that produced it. It is a non transferable resource
.
204
Tacit knowledge and intangible resources
• Intangible firm assets are the main source of firm competiveness (Resource-based view). • According to this approach, firm resources are valuable, rare, non substitutable, non-tradable and cannot be easily imitated (Penrose 1959) . • Entity and quality of such a resource is correlated with accumulation (time) and learning (path dependent) • The existing stock of resources is heterogeneous and immobile
Tacit knowledge and intangible resources
• The resource-based view considers capabilities not as static attributes but, rather as the ability of the firm to adapt to, and gain competitive advantage in a rapidly changing environment. (Teece 1992) • In order to fully exploit internal resources and to develop sustained competitive advantages, a firm may need access to external complementary resources (Richardson, 1972).
Tacit knowledge and intangible resources
• Inter-firm collaboration -alliances and joint ventures- can be seen as a mode of skill acquisition and skill building. In sum, strategic alliances - and in particular strategic technical alliances - may be a very effective organisational mode for the firm to gain access to resources and upgrade capabilities . (Glaister 1996; Caloghirou et al. 2003). • In addition interfirm cooperation is an outcome of increasing pressures – such as increasing breadth, tempo and scale of technology, decreasing product life and design time, increasing complexity of product requirements (Caloghirou et al. 2003). • In this context going-it-alone is not a feasible strategy. Generally speaking, “firms create more alliances in response to the powerful, knowledge-driven forces reshaping their economic environment ”. (Badaracco, 1991).
Skills integration actions
Actions
Recruiting Additional Employees Entering into Research Agreements with Universities and Research Centers Developing Deeper Relationships with Existing Suppliers Developing Agreements with Other Firms Acquiring Firms that Possess the Required Know-how Other (Internal R&D; Consulting Services; etc.) Fonte:Assolombarda 2011
In Italy 34 24 19 25 17 3 Abroad 23 10 11 22 16 3 Total 57 34 30 47 33 6
208
Resource complementarity
There is resource complementarity when: a) a party cannot complete the project undertaken without the intellectual resources of the other and vice versa, and b) the resources of at least one partner are not tranferable or may be transferred only incurring in very high cost (tacit knowledge ) 209
The individual alternative
• Internal growth • External growth (acquisitions) • Abandon the project 210
Interfirm cooperation
• Three types of strategic alliance can be identified (Glaister, 1996): • a) strategic alliances to gain critical mass in resources, • b) strategic alliances to acquire capabilities through learning, and • c) strategic alliances to generate new proprietary capabilities through the convergence of idiosyncratic capabilities from partner firms.
Interfirm cooperation
• Formal and informal agreements • Equity and non equity joint ventures • Consortia 212
Interfirm cooperation and resource complementarity: Benefits
• Exploitation of tacit knowledge in terms of diversification or extension applications; • Reduced transaction costs • No dispersion of skills and knowledge 213
Firm Incentives to join an research joint venture ( Input-related motives ) • • • • • • • • • • • • • • • (detailed in Caloghirou et al. 2003).
Efficiency motives 1. R&D cost sharing; 2. Reduction of R&D duplication; 3. Risk sharing, uncertainty reduction; 4. Spillover internalisation; 5. Continuity of R&D effort, access to finance; Resource base motives 6. Access of complementary resources and skills; 7. Research synergies; 8. Effective deployment of extant resources, further development of resource base; 9. Strategic flexibility, market access, and the creation of investment “options”; Competition 10.Promotion of technical standards; 11.Market power, co-opting competition; 12.Legal and political advantages.
Firm Incentives to join an research joint venture ( Output-related motives ) (detailed in Aschhoff & Schmidt 2008) • R&D collaboration with universities increases the growth of sales attributable to market novelties et al. 2004); , while cooperation with suppliers and competitors leads to a growth of value added per employee (Belderbos • Lööf, and Broström (2008) find that collaboration between universities and firms not only increases the probability that firms will apply for a patent but also has a positive impact on innovative sales per employee .
• Cooperating firms have higher sales attributable to product innovations than do non-cooperating firms (Gemünden and Ritter 1997); • Cooperating firms perform better in terms of innovative sales other firms (König et al. 1994; Felder et al. 1994).
than do • Klomp and van Leeuwen (2001), for example, find a positive impact of a cooperation dummy variable on the innovation output of firms .
Firm Incentives to join an research joint venture ( Output-related motives ) (detailed in Aschhoff & Schmidt 2008) • R&D cooperation with competitors or with firms from the same sector has a highly significant positive effect on firms cost reduction to improve their production processes . External expertise acquired through cooperation with competitors seems to help significantly (Aschhoff &Schmidt 2008 ) • The firms that cooperate with universities or research institutions in their R&D and innovation activities have a higher share of turnover from market novelties than do firms that do not cooperate or those firms that cooperate with customers, suppliers, or competitors. For firms to achieve above-average success with market novelties, it seems particularly important that they (Aschhoff & Schmidt 2008 ) combine their own know-how with expertise and knowledge from research institutes and universities
Innovative Networks and Partners Diversity Source: Pittaway et al. 2004
Network and Suppliers
• Integration of suppliers can (Pittaway et al. 2004) : • help manufacturers identify improvements that are necessary to remain competitive (Lincoln et al. 1998; PerezPerez and Sanchez 2002); • enable firms to bring to bear wider expertise during the development process (Romijn and Albaladejo 2002; Romijn and Albu 2002); • help reduce concept-to-customer cycle time, costs and reduce quality problems (Ragatz et al. 1997); • give incentive to buyer firm to invest more in research and development , because they require an infrastructure in which to frame collaborative behaviour (Perez Perez and Sanchez 2002).
Network and Suppliers
Network and Suppliers
Network and Customers
• Pittaway et al. (2004) : • dialogue between key business customers and suppliers not only allows firms to learn of existing needs but also lead to the discovery of new needs in advance of the competition (Bruce and Rodgus 1991); • customers are crucially important at the idea generation stage process (Gemünden
et al
. 1992); of the innovation • the innovator learns from the customer the likely market potential product idea (Gemünden
et al
. 1992). of the • customer involvement reduces the risks of innovation Ragatz
et al
. 1997) ; (Gemünden
et al
. 1992; • customer involvement tends to be useful at the beginning , in terms of idea generation, but is less so during the developmental process (Biemans 1991; Bruce and Rodgus 1991; Conway 1995; Gemünden et al. 1992).
Network and Institutions
•
Science Partners
applied science consultancies and independent research and design laboratories): (universities, technical colleges, research institutes, • play an important role as independent network brokers and intermediaries within business networks (Pittaway et al. 2004); • help firms to develop thinking that steps outside their particular business system (Liyanage 1995); • enable different business systems to communicate by generating trust between different parties in their common role as neutral agents (Hausler
et al.
1994). • tend to be most important where the innovation is relatively radical in orientation (Ebadi and Utterback 1984; Fritsch 2001; Verspagen 1999).
Network and Institutions
•
Venture Capital Firms:
• provide a networking infrastructure for the commercialization of innovation (Florida and Kenney 1988); • act as key brokers within technology and innovation networks, introducing key partners to prospective and current firms with whom they have invested (Bygrave 1987, 1988).
Market incompleteness
224
Definition
A market is incomplete where the consumer, while agreeing to pay a fair price (reflecting the cost of production), does not have access to the required good or service because of shortage of supply.
(Movies today in Parma)
225
Vertical integration and market size (Stigler)
MS,VI VI MS Intro Maturity Decline T
Hp
• Market incompleteness allows for huge incentives for cooperation between firms (and between economic agents)
A typology
• Coordination goods • Public Goods • Non-transferable goods • Indivisible goods 228
Coordination goods • High cost of information, planning and monitoring (for example technological standard) • Presence of multiple equilibria • Supply shortage • Coordination goods are produced only after coordination problems are overcome 229
Oligopoly and Product Quality
230
Assumptions
• Two identical firms • The quality of the product is closely correlated with the costs of the inputs • Temporary lag in the consumer perception of quality change • The consumer cannot identify the producer (commodity)
P C
Oligopoly and Product Quality
D 1 Q
232
P C
Oligopoly and Product Quality
MR 1 D 1 Q
233
P C
Oligopoly and Product Quality
MC 1 AC 1 MR 1 D 1 Q
234
P C
Oligopoly and Product Quality
MC 1 AC 1 Q 1 MR 1 D 1 Q
235
Oligopoly and Product Quality
P C P 1 MC 1 AC 1 Q 1 MR 1 D 1 Q
236
Oligopoly and Product Quality
P C P 1 MC 1 AC 1 Q 1 MR 1 D 1 Q
237
P C P 1
Oligopoly and Product Quality
MC 1 AC 1
Q 1 MR 1 D 1 Q
238
P C P 1
Oligopoly and Product Quality
MC 1 Q 1 AC 1 MR 1 D 1 Q
239
P C P 1
Oligopoly and Product Quality
MC 1 Q 1 AC 1 MR 1 D 1 Q
240
Oligopoly and Product Quality
P C P 1
MC 1
AC 1
MR 1 Q 1 D 1 Q
241
P C
Oligopoly and Product Quality
MC 1 AC 1 D 2 Q
242
P C
Oligopoly and Product Quality
MC 1 MR 2 AC 1 D 2 Q
243
P C
Oligopoly and Product Quality
MC 1 Q 2 MR 1 AC 1 D 2 Q
244
P C
Oligopoly and Product Quality
MC 1 P 2 Q 2 MR 1 AC 1 D 2 Q
245
P C
Oligopoly and Product Quality
MC 1 P 2 Q2 Q 1 MR 1 AC 1 D 2 Q
246
P C P 1
Oligopoly and Product Quality
MC 1 MC 2 AC 2 P 2 AC 1 Q2 Q 1 MR 1 D 2 Q
247
P C P 1
Oligopoly and Product Quality
MC 1 MC 2 AC 2 P 2 AC 1 Q 2 Q 1 MR 2 MR 1 D 2 D 1 Q
248
P C
Oligopoly and Product Quality
MC 1 P 2 Q 2 MR 1 AC 1 D 2 Q
249
P C
Oligopoly and Product Quality
MC 1 P 2 Q 2 MR 1 AC 1 D 2 Q
250
P C
Oligopoly and Product Quality
MC 1 P 2
↑ ↑
MR 1 AC 1 Q 2 D 2 Q
251
P C
Oligopoly and Product Quality
MC 1 P 2 AC 1
↑ ↑ ↑
MR 1
↑
Q 2 D 2 Q
252
P C
Oligopoly and Product Quality
MC 1 P 3 AC 1 Q 3 MR 1 D 3 Q
253
P C P 4
Oligopoly and Product Quality
MC 1 AC 1 Q 4 MR 1 D 1 Q
254
Parma Ham Consortium
•
(from the Consortium Web site)
• • • • •
“What is the Consortium
T
he voluntary Consortium of Parma Ham was set up in 1963, on the initiative of 23 producers with the objectives of safeguarding the genuine product and the image represented by the name 'Parma'.
D
omestic and international demand continues to grow and the Consortium now has 189 members.
T
he Consortium meets market demands whilst rigorously adhering to the traditional production methods and rejecting everything that does not meet the highest quality standards .
T
he Consortium's quest for perfection was acknowledged by the EU in 1996 when Parma Ham became one of the first meat products to be awarded the Designation of Protected Origin status.
Public goods
• Non-rivalry in consumption • Non-excludability • Difficulty of allocating costs of production • Reduced production incentives • Supply is lower than demand 256
Non-transferable goods
• Presence of tacit knowledge (non tradable goods) • Difficulties in assigning property rights • Non contractability • Supply shortage (Risk of abuse) 257
Indivisible goods
• Huge volume and fixed size of the single production batch • Not detachable entities • Mismatch between the volume of demand and minimum size of supply 258
Economies of specialization and cooperative agreements
C ACa ACb3 ACa1 ACb ACc Q x1 2x1
Individual action
• Size growth/Hierarchy • Acquisitions 260
Interfirm Cooperation
• Consortia • Formal agreement • Resources sharing 261
Interfirm Cooperation: Expected benefits
• Overcoming limits of critical mass, assignment of property rights and learning and skill constraints • Reduction of supply shortage • Exploitation of partially idle resources 262
Check List
Check List Expected Gross Benefits of …………………………… 0 1 3 5 Individual Firm Economie of Scale Economies of Scope Economies of Specialization Reduction of Transaction Costs Risk sharing Collusion Payoffs Internalization of Esternalities Exploitation of Resource Complementarity Lower Market Incompleteness
Check List Expected Gross Benefits of …………………………… 0 1 3 5 Interfirm Cooperation Economie of Scale Economies of Scope Economies of Specialization Reduction of Transaction Costs Risk sharing Collusion Payoffs Internalization of Esternalities Exploitation of Resource Complementarity Lower Market Incompleteness
Check List Expected Gross Benefits of …………………………… 0 1 3 5 Acquisition & Merger Economie of Scale Economies of Scope Economies of Specialization Reduction of Transaction Costs Risk sharing Collusion Payoffs Internalization of Esternalities Exploitation of Resource Complementarity Lower Market Incompleteness
Check List
Gross Expected Benefits