Collusion with Public and Private Ownership and Innovation
46 Pages Posted: 24 Oct 2017 Last revised: 29 May 2019
Date Written: May 27, 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 similar technologies is key. Private ownership dominates for intermediately attractive or early-stage innovation, 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