Research

DESCRIPTION
My current research focuses on the dynamics of innovation, models of entry, and competition policy.  I have, however, a broad interest in Microeconomic Theory, Industrial Organization, and Applied Theory.

PUBLISHED OR FORTHCOMING PAPERS
[1] Sequential Innovation, Patent Policy, and the Dynamics of the Replacement Effect
[pdf] [Online Appendix]
RAND Journal of Economics, Vol 50 (3), Pages 568–590
    I study how patent policy—characterized by patent length and forward protection—affects Research and Development (R&D) dynamics, leadership persistence, and  market structure. Firms’ R&D investments increase as the patent’s expiration date approaches. Through forward protection, followers internalize the leader’s replacement effect. In protective systems, this internalization is substantial, reversing Arrow’s traditional result: followers invest less than leaders at every moment of the patent’s life. I study the policy that maximizes innovative activity. Overly protective policies decrease innovation pace through two mechanisms: delaying firms’ investments toward the end of the patent’s life and decreasing the number of firms performing R&D.

[2] Innovation and Competition: The role of the Product Market [with Guillermo Marshall] [pdf] (draft: July 2018)
International Journal of Industrial Organization, Vol 65, July 2019, 221-247
   We study how competition impacts innovation (and welfare) when firms compete both in the product market and in innovation development. This relationship is complex and may lead to scenarios in which a lessening of competition increases R&D and consumer welfare in the long run. We provide conditions for when competition increases or decreases  industry innovation and welfare. These conditions are based on properties of the product market payoffs. Implications for applied work and policy are discussed.

This paper was received the “2019 IJIO Best Theoretical Paper Award”.

[3] Announcing High Prices to Deter Innovation [with Guillermo Marshall] [pdf] (draft: Nov. 2019)
Management Science, Vol. 67, No. 4, April 2021, pp. 2448–2465
     Price announcements—similar to the ones made in media events by tech firms—are effective in deterring innovation. By announcing (and setting) a high price, a rm increases its rivals’ short-run pro ts, which generates a complacency effect that reduces the rival firms’ incentives to innovate. We show that the equilibrium prices are greater and the R&D investments are lower relative to when price announcements cannot be used strategically. We call this the R&D deterrence effect of price, and show that it induces equilibrium prices that may exceed the multiproduct monopoly prices and even dissipate the consumer benefits of innovation.

WORKING PAPERS  
[1] Equilibrium Uniqueness in Entry Games with Private Information [with José Espín-Sanchez and Yuzhou Wang] [pdf] 
     We study equilibrium uniqueness in entry games with private information. Our framework embeds models commonly used in applied work, allowing rich forms of firm heterogeneity and selective entry. We introduce the notion of strength, which summarizes a firm’s ability to endure competition. In environments of applied interest, an equilibrium in which entry strategies are ranked according to strength, called herculean equilibrium, always exists. Thus, when the entry game has a unique equilibrium, it must be herculean. We derive simple sufficient conditions guaranteeing equilibrium uniqueness and, consequently, robust counterfactual analyses.

[2] Second-Price Auctions with Participation Costs [with José Espín-Sanchez and Yuzhou Wang]
     We study equilibria and efficiency in a second-price auction with public participation costs. We generalize previous results by allowing arbitrary heterogeneity in the bidders’ distribution of valuations and in their participation costs. We apply the notion of bidder strength, and show that an equilibrium where stronger bidders have a lower participation threshold than weaker bidders, called herculean equilibrium, always exists. We provide a sufficient condition for equilibrium uniqueness. Even though all equilibria are ex-post
inefficient, an ex-ante efficient equilibrium always exists. Therefore, when conditions for uniqueness hold, the herculean equilibrium is unique and ex-ante efficient.

[3] On the Interaction between Patent Screening and its Enforcement, with Gerard Llobet and Javier Suárez. (Substantial revision of a previous paper, as requested by RAND). [pdf]
This paper explores the interplay between patent screening and patent enforcement. Costly enforcement involves type I and type II errors. When the patent office takes the rates at which such errors occur as given, granting some invalid patents is socially optimal even in the absence of screening costs because it encourages innovation. When the influence on courts’ enforcement effort is considered, these same forces imply that screening and enforcement are complementary. This means that, contrary to common wisdom, better screening induces better enforcement but also that an increase in enforcement costs could be optimally accommodated with less rather than more ex-ante screening.

[4]Early-Stage Venture Financing [with Ralph Winter] [pdf]
This paper develops a theory of the earliest stage of venture financing. Ventures choose between equity and “SAFE’s” — a promise of shares as priced at a future equity round. When information asymmetries between entrepreneurs and the market shrink over time, higher quality types prefer SAFE’s over equity because their types will be revealed before the determination of the price applicable to the conversion of their investment into shares. Equity financing involves adverse selection whereas SAFE financing involves favorable selection but also a moral hazard problem. We find empirical support for the theory in a data set of 500 financing rounds.

OTHER WORKING PAPERS

[2] Mergers in Innovative Industries: A Dynamic Framework [with Guillermo Marshall] [pdf]
     Briefing: We investigate how a merger with R&D efficiencies affects market outcomes over time. To this end, we propose a dynamic framework based on a patent race model of sequential innovations with endogenous market structure. We show that timely (but costly) entry into the patent race is sufficient to guarantee that mergers are welfare improving. These results hold for all efficiency levels and despite the fact that mergers may reduce the number of firms performing R&D by more than one.

WORK IN PROGRESS
[1] Product Differentiation and R&D Spillovers
     Briefing: We study the product location decision when location affects both the degree of product differentiation and the spillovers that exists among the firms.

[2] When to License Sequential Inventions

[3] Early-Stage Venture Financing,  with Ralph Winter