Anthony J. Creane
Department of Economics
Gatton College of Business and Economics
University of Kentucky
Lexington, KY 40506 USA
papers (PDF files)
Also can be found at: http://ssrn.com/author=30916
Abstract: The importance of institutions for economic growth has gathered considerable interest. Our concern is with how weak institutions can prevent firms from communicating their product's quality, which can lower welfare. We explore whether exporting high quality to markets with strong institutions can alleviate this inefficiency. Surprisingly, we find that access to developed markets can exacerbate the problems caused by weak institutions and harm home welfare. Among other results, first, there is always an export price at which the country is better off if exporting were prevented. Second, any harm is increasing in the amount exported. Third, if not all high quality is exported, then home welfare can always be increased by restricting exports. Fourth, the opening of trade can reduce producer surplus and so in the long run lead to a reduction in the production of the export good. Fifth, welfare can decrease even if production of the exported good increases.
Abstract: We consider the role learning has on foreign direct investments (FDI) when there is both cost and demand uncertainty. FDI has an obvious benefit as it gains the firm information about local demand and costs. However, FDI has a second effect: it correlates the firm's cost with the local rival's cost, which proves harmful in both price and quantity competition. Thus, the choice depends on whether the firm faces relatively more demand or cost uncertainty, to what extent inputs are locally procured and how differentiated the rival's product is.
Abstract: We examine a firm that can license its production technology to a rival when firms are heterogeneous in production cost. We show a complete technology transfer from a firm to another always increases joint profit under weakly concave demand when at least three firms remain in the industry. A jointly profitable transfer may reduce social welfare, although a jointly profitable transfer from the most efficient firm always increases welfare. We also consider two auction games under complete information: a standard first-price auction and a menu auction by Bernheim and Whinston (1986). With natural refinement of equilibria, we show that the resulting licensees are ordered by their degrees of efficiency: menu auction, simple auction, and joint-profit maximizing licensees in (weakly) descending order.
Abstract: In markets for experience or credence goods adverse selection can drive out higher quality products and services. This negative implication of asymmetric information about product quality for trading and welfare, poses the question of how such markets first originate. We consider a market in which sellers make observable investment decisions to enter a market in which each seller's quality becomes private information. Entry has the tendency to lower prices, which may lead to adverse selection. The implied price collapse limits the amount of entry so that high prices are sustained in equilibrium, which results in above normal profits. The analysis suggests that rather than observing the canonical market collapse, markets with asymmetric information about product quality may instead be characterized by above normal profits even in markets with low measures of concentration and less entry than would be expected.
Abstract: Foreign direct investment (FDI) gives foreign firms access to local labor and inputs, thereby harmonizing costs between foreign and domestic firms relative to exports. This paper investigates the welfare effects of such cost harmonization in strategic environments, finding that when the number of home firms is sufficiently close to the number of foreign firms, FDI reduces home country welfare, whether FDI raises or decreases foreign firms' marginal costs. Under these conditions, if production costs are identical in both countries and the domestic country practices free trade, then it is harmed if the foreign government engages in trade liberalization by reducing its subsidy (or tax) on its exporters.
a revised version of this paper is forthcoming in European Economic Review
Abstract: Pattern bargaining is a negotiating strategy that is often employed by industry-wide unions in oligopolistic industries to set wages. The conventional wisdom is that pattern bargaining 'takes labor out of competition' and therefore softens bargaining between the union and firms, resulting in higher industry wide wages. However, this does not explain why firms agree to pattern bargaining. We introduce a dynamic model in which the agents face uncertainty about the relative product-market positions of the firms and compare the trade-offs involved in adopting different bargaining mechanisms. We show that with sufficient heterogeneity in non-labor costs, there are situations in which both the union and the firms prefer pattern bargaining. We also show that in such situations, the adoption of pattern bargaining harms consumers. This provides an explanation as to how pattern bargaining can arise in equilibrium and why there is often strong political opposition to it.
Excessive Dissemination of Patent Licenses," (Revised) December 2005
a revised version of this paper appears in Canadian Journal of Economics, Vol. 42(4), November 2009, pp. 1578-1598.
Abstract: Assigning monopoly power to an inventor is usually viewed as a static efficiency cost required so as to obtain the dynamic benefit of increased research and development; public dissemination is considered to be the optimal static policy. As Ordover argues (1991), 'static efficiency considerations mandate that the knowledge asset, resulting from R&D ...be made widely available to those who are willing to pay the low marginal cost of dissemination.' Katz and Shapiro (1986) find that when a monopolist licenses an innovation to competing downstream firms, '[its] incentives to disseminate the innovation typically are [socially] too low.' In contrast, I find that for cost-reducing innovations, not only can dissemination be excessive if this knowledge asset was made widely available, but even if there is monopoly dissemination. For example, it can be profit maximizing for the lab to issue several license while it is socially optimal that no licenses are issued. Further, rather than being a static efficiency cost, assigning monopoly power could raise welfare.
Abstract: We examine the standard assumption in the strategic trade policy literature that governments possess complete information. Assuming instead that firms have better information, we explore the long-term incentives for firms to consistently disclose information to their governments in the standard setting. We find that with quantity competition firms disclose both demand and cost information to the governments, thereby giving some justification to the literature's omniscient-government assumption. Further, the equilibrium exhibits an informational prisoner's dilemma with demand uncertainty, but not with cost uncertainty. With price competition, however, firms have no incentives to disclose information.
Abstract: Large firms often negotiate wage rates with labor unions. When they do so, an ex-ante agreement to share information about parameters should make it more likely that they will be able to reach an agreement and capture the gains from trade. However, if the firm refuses to share information, the union may shade down its wage demand in order to increase the probability of acceptance. We show that this reduction in the wage can increase the joint surplus to be shared by the agents and increase social welfare. As a result, there are some circumstances in which bargaining with incomplete information can be better for the agents and society than bargaining with complete information. We also show that many other outcomes are possible and that social welfare and expected profits are highly non-linear with respect to key parameters.
information in vertical sharing agreements" November 2005
a revised version appears in International Journal of Industrial Organization Vol. 25(4), August 2007, pp. 821-841
Abstract: Recent work has introduced an insight into information sharing literature: firms not only share information with their rivals but also with their suppliers. However, by considering the traditional variables of the literature (cost or demand information), this work does not fully take advantage of the richness of such an environment. This paper analyzes instead the sharing of productivity information, which, unlike cost or demand information, affects the supplier's profits non-linearly. As a result, a firm by sharing information raises its expected input price. Moreover, there is a new strategic effect: by sharing information the firm raises the rival's expected wage. Through this price effect the sharing information can increase producer surplus in price competition, where previously it reduced producer surplus.
a revised version appears in Economic Theory Vol. 34(3), March 2008, pp. 585-590.
Abstract: When product quality is unknown, a natural supposition is that having more 'informed consumers' will increase consumer surplus and welfare. However, when a monopolist is selling a product of unknown quality, welfare can decrease in the fraction of informed consumers.
a revised version appears in International Journal of Economic Theory, Vol. 3(4), December 2007, pp. 329-334.
Abstract: It is well known that under general conditions entry into imperfectly competitive markets usually is excessive (e.g., Weizsacker 1980, Mankiw and Whinston 1986). This note explores the effects of uncertainty on this result. That is, randomly some entrants who incur investment/entry costs fail to enter a market. It is found the previous conditions sometimes do not hold when there is uncertainty. That is, with uncertainty entry may be socially insufficient by more than one firm. For example, in equilibrium four firms may attempt to enter, when it is socially optimal for seven firms to attempt to enter the market.
a revised version of this paper appears in Journal of Economics & Management Strategy, Vol. 17(4), Winter 2008, 865-893.
is common for firms to systematically share financial and productivity data
with their input suppliers, as well as their rivals. However, there has been a
systematic change in the
a revised version appears in International Journal of Industrial Organization, Vol. 27(5), September 2009, pp. 632-638
Abstract: AT&T was known for both funding a world-class research lab and delaying deployment of useful innovations from the lab. To explain this behavior we consider a model with an incumbent facing a potential entrant. The incumbent can choose from two technologies for production: old and new. The entrant's choice is limited to the old. We show that, under correlated production uncertainty, use of the common technology exposes the entrant to a greater risk. Therefore, the incumbent may suppress a newer, more efficient technology in favor of the old as a means to deter entry.
a revised version appears in International Journal of Industrial Organization, Vol. 27(3), May 2009, pp. 379-389.
1984 GM and
a revised version appears in Canadian Journal of EconomicsVol. 37(3), November 2004, pp. 951-977.
a revised version appears in Annals of Operation ResearchAugust 2002, pp. 83-105.