Collusion with Public and Private Ownership and Innovation
44 Pages Posted: 24 Oct 2017 Last revised: 23 Jan 2019
Date Written: January 22, 2019
We argue that, by enforcing the regular provision of vetted information, public ownership can help firms coordinate to avoid head-to-head competition. Such "collusion" opportunities increase profitability ex post, but could lead to time-inconsistency problems undermining innovation ex ante. We show that public ownership benefits firms for which innovation is either of limited importance --- so coordination on existing technologies is key --- or of first-order importance --- so coordination with rivals developing the same technology is key. Private ownership dominates for intermediately attractive innovation opportunities, where time inconsistency problems are prevalent. The predictions of our model shed light on several puzzling stylized facts.
Keywords: Public and Private Ownership, Innovation, Collusion
JEL Classification: G31, G32, L41, O31
Suggested Citation: Suggested Citation