Common Ownership, Competition, and Top Management Incentives

Abstract : We present a mechanism based on managerial incentives through which common ownership affects product market outcomes. Firm-level variation in common ownership causes variation in managerial incentives and productivity across firms, which leads to intra-industry and intra-firm cross-market variation in prices, output, markups, and market shares that is consistent with empirical evidence. The organizational structure of multiproduct firms and the passivity of common owners determine whether higher prices under common ownership result from higher costs or from higher markups. Using panel regressions and a difference-in-differences design we document that managerial incentives are less performance-sensitive in firms with more common ownership.

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The Effectiveness of Innovation Alliances Under Task Uncertainty: Unpacking Cooperation and Coordination Difficulties in Antibiotic Drug Development

Abstract : In this study we examine the effectiveness of innovation alliances under conditions of task uncertainty. Drawing from the organization design literature, we argue that task uncertainty increases coordination difficulties between alliance partners even when problems of cooperation owing to incentive, ownership and appropriation conflicts are not in evidence. We further suggest that co-development alliances requiring stronger task interdependence, and public-private alliances involving different organizational types, amplify the coordination difficulties under task uncertainty. Using global data on the drug development history of 2,976 antibacterial agents in the period 1995-2018, we find that the likelihood that a drug progresses from one development phase to the next is lower for drug development with alliances compared to solo efforts. Further, alliances between private sector partners outperform public-private alliances, and co-development alliances are less effective relative to more arm’s length arrangements. These findings draw attention to the understudied role of coordination in alliances, while highlighting the salience of task uncertainty distinct from behavioral or environmental uncertainty in innovation contexts.

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Not from Concentrate: Collusion in Collaborative Industries

Abstract : It is a core principle of antitrust law and theory that reduced market concentration lowers the risk of anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete. Traditional models assume that firms interact only as competitors. We examine and model “Collaborative Industries,” which afford rival firms opportunities to meaningfully collaborate. For example, in some industries, firms compete to win business, but then work together to complete production (e.g., through subcontracting). Firms in Collaborative Industries have powerful ways to reward or punish each other beyond raising or lowering the prices they offer to customers. These mechanisms create much greater scope for collusion than economic models conventionally recognize. We show that Collaborative Industries can sustain anticompetitive collusive behavior no matter how unconcentrated the industry becomes. In some instances, lower market concentration makes collusion easier; smaller firms may be more dependent on collaboration with rivals and thus may be easier to punish if they undercut collusion. These results run directly counter to the conventional wisdom, gleaned from models of non-Collaborative Industries, that permeates antitrust law.

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