Endogenous Spillovers, Increased Competition and Re-Organization Waves

Universitat Pompeu Fabra Economics Working Paper No. 352

23 Pages Posted: 15 Oct 1999

Date Written: January 1999

Abstract

We consider an entrepreneur that is the sole producer of a cost reducing skill, but the entrepreneur that hires a team to use the skill cannot prevent collusive trade for the innovation-related knowledge between employees and competitors. We show that there are two types of diffusion-avoiding strategies for the entrepreneur to preempt collusive communication: i) setting up a large productive capacity (the traditional firm), and ii) keeping a small team (the lean firm). The traditional firm is characterized by its many "marginal" employees that work short days, receive flat wages and are incompletely informed about the innovation. The lean firm is small in number of employees and engages in complete information sharing among members that are paid with stock option schemes. We find that the lean firm is superior to the traditional firm when technological entry costs are low and when the sector is immature.

JEL Classification: C70, D23, D43, D82, L11, L22, O31

Suggested Citation

Rodriguez-Palenzuela, Diego, Endogenous Spillovers, Increased Competition and Re-Organization Waves (January 1999). Universitat Pompeu Fabra Economics Working Paper No. 352, Available at SSRN: https://ssrn.com/abstract=155268 or http://dx.doi.org/10.2139/ssrn.155268

Diego Rodriguez-Palenzuela (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49) 69-1344-6480 (Phone)
(49) 69-1344-6575 (Fax) (Fax)

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