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Title: 3 essays on technological change and welfare
Author: Athanasopoulos, A. A.
ISNI:       0000 0004 5348 2875
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2014
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In the first chapter of this Thesis, we examine an incumbent monopolist's incentives to upgrade his durable, network product in the subsequent period while facing a potential rival who may also produce a version of identical quality. We show that the incumbent firm may commit not to upgrade because he can charge sufficiently patient, forward looking consumers more in the present market when entry is certain and compatibility between the competitors' versions is mandatory. In fact, his commitment could be an additional factor of inefficiency while a potential or actual competitive threat could dissolve social optimality. When sequential, non-drastic innovation occurs with certainty, we show in the second chapter that the dominant market player may voluntarily support compatibility when he anticipates a moderately large quality improvement by the competitor for a fairly general set of assumptions regarding consumers' (un)willingness to postpone their purchase and the rival's (in)ability to price discriminate between the different customers' classes. This happens as strategic pricing allows the dominant firm to extract more of the higher total expected surplus that emerges when interoperability is present. Furthermore, we find that mandatory compatibility does not de-facto maximise social welfare, decreases consumer welfare and we identify no market failure when network effects are not particularly strong. For sufficiently innovative products and although compatibility is not supported by the dominant firm, consumers' welfare is maximised because of the lower prices that emerge due to the higher degree of competition that arises when interoperability is not present. In the third chapter, we consider discrete time, stochastic Research and Development [R&D] processes where both an initially dominant and a smaller rival are potential inventors. For sufficiently innovative future products, our first key result is that the dominant firm invests more when compatibility is present and voluntarily decides to supply interoperability information. This happens as the probability that he is the only inventor in the market increases when products are compatible, allowing him to enjoy a higher expected future profit that outweighs the lost current revenue. For economies whose existing market size is considerably large, the rival also demands compatibility while this is no longer true in industries with a relatively smaller number of existing consumers. For less innovative new versions, the dominant firm rejects compatibility and we also find that there is a cutoff in network externalities below which the dominant firm invests more when compatibility is not present. Regarding welfare, we find that a laissez faire Competition Law with respect to the Intellectual Property Rights holders is socially preferable.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HD Industries. Land use. Labor