Collusion with Public and Private Ownership and Innovation
47 Pages Posted: 24 Oct 2017 Last revised: 7 Aug 2018
Date Written: August 1, 2018
We argue that, by enforcing the regular provision of vetted information, public ownership can help firms coordinate strategy to avoid head-to-head competition. Such "collusion" opportunities increase the profitability of existing technologies, but may hurt innovation incentives. We show that collusion opportunities benefit firms that either do not consider innovating attractive or consider innovating very attractive. For moderately attractive innovation opportunities, private ownership dominates. By making it harder to coordinate with rivals, private ownership helps firms overcome time inconsistency problems related to abandoning innovation too easily. Firms' incentives to grow are also affected. Our predictions shed light on several puzzling stylized facts.
Keywords: Public and Private Ownership, Innovation, Collusion
JEL Classification: G31, G32, L41, O31
Suggested Citation: Suggested Citation