Collusion with Public and Private Ownership and Innovation

46 Pages Posted: 24 Oct 2017 Last revised: 20 May 2018

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Vladimir N. Vladimirov

University of Amsterdam Business School

Date Written: May 19, 2018

Abstract

We argue that public ownership helps firms avoid head-to-head competition. However, collusion opportunities on existing technologies reduce the commitment to develop new ones, and could destroy firm value. We show that the latter effect dominates when a new technology's expected profitability is intermediate, in which case private ownership is optimal. Opportunities to avoid competition increase firm value when new technologies appear either only marginally or very attractive, resulting in a U-shaped relation between the attractiveness of innovation and public ownership. While buying equity stakes also reduces competition, it is an imperfect substitute. Our main predictions are consistent with empirical patterns and shed light on several puzzling stylized facts.

Keywords: Public and Private Ownership, Innovation, Collusion

JEL Classification: G31, G32, L41, O31

Suggested Citation

Boot, Arnoud W. A. and Vladimirov, Vladimir N., Collusion with Public and Private Ownership and Innovation (May 19, 2018). Available at SSRN: https://ssrn.com/abstract=3057555 or http://dx.doi.org/10.2139/ssrn.3057555

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4162 (Phone)
+31 20 525 5318 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Vladimir N. Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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