Research Track Record and Research Plan
My main research interests are Industrial Organisation, Antitrust and Regulatory Economics,
Economics of Science and Innovation and Applied Microeconomics.
My paper “Compatibility, Intellectual Property, Innovation and Welfare in Durable Goods Markets with
Network Effects” addresses an important question at the intersection of competition and intellectual
property law: should dominant firms be obliged to supply compatibility information to rivals regarding
their durable network goods? I find that a less interventionist competition law may be preferable for
both society and consumers.
To show this, I build a theoretical model examining a dominant firm’s approach towards the
compatibility of its durable network product with that of an innovative rival in the presence of
overlapping generations of forward-looking and rational consumers. I find that dominant firms may
voluntarily support compatibility when (1) moderately large future quality improvements are possible,
and (2) network effects are weak. The reason is that strategic pricing enables them to charge a higher
price in the present market due to the higher total surplus when they are compatible with a
competitor. When compatibility is not supported, incompatible networks lead to fiercer competition
that increases consumer surplus.
I also demonstrate that mandatory compatibility does not de-facto maximise social welfare, and that
there is no market failure when network effects are weak. These are important results for both
academics and policy makers.
My Job Market paper “Incentives to Innovate, Compatibility and Welfare in Durable Goods Markets
with Network Effects” (under review Rand Journal of Economics), provides answers to the following
questions: Why do dominant firms currently sign compatibility agreements with smaller innovative
rivals with regard to their future durable network products in the presence of forward-looking and
rational customers? Even if they refuse to support compatibility, does this imply that their R&D
incentives are curbed? Could smaller rivals be better-off if they did not sign the agreement with the
current market leader? Which economy offers a socially optimal mix of aggregate R&D incentives ---one that operates under mandatory compatibility or under laissez faire competition law? Are
consumers better-off in an economy mandating compatibility?
These questions are certainly not new but my work is the first to examine them in an environment
where technological progress is modelled in a two-period scenario involving sequential innovations of
durable network products and overlapping generations of consumers. I establish that firms’ R&D
efforts become strategic complements for the current market leader when compatibility is present and
network effects are strong. In contrast, R&D efforts become strategic substitutes for both firms for
weak network externalities.
As in Cabral and Salant (2014), who considered a scenario of non-cooperative R&D competition and
cooperative standards setting but without durable network products and overlapping generations of
incoming customers, I also find that dominant firms’ R&D incentives are curbed under compatibility
when network effects are weak, as they free ride on the rival’s R&D effort. Nevertheless, I find that
when network effects are relatively strong, the dominant firm invests more when it currently supports
compatibility. Unlike Chen, Doraszelski and Harrington (2009), who predict that dominant firms do not
support compatibility with small rivals when product quality is constant, my paper can reconcile the
compatibility agreements that firms with dominant market shares sign with smaller market players. In
particular, I show that sufficiently innovative future products lead the dominant firm to voluntarily
support future compatibility even with direct future competitors. In fact, the dominant firm invests
more when compatibility is present, increasing the endogenous probability of being the sole future
inventor. Thus, one could see an analogy with Bessen and Maskin (2009), who explain why dominant
market players may support competition and imitation by competitors.
I also establish that the smaller rival may refuse to sign a compatibility agreement in industries with
few existing consumers. The rival faces a trade-off: although compatibility allows her to set a higher
future price to current consumers, the probability of being the sole second period supplier is lower
compared to the economy operating under incompatibility. Thus, when the first period market is
relatively large, her optimal choice is to offer compatibility to the market leader. The welfare effects
of compatibility are complex. I find that when network effects are weak, the inability of firms to reach
a compatibility agreement increases expected consumer surplus and leads to more balanced market
R&D incentives relative to the economy that mandates compatibility.
In the future I am interested in investigating the role of asymmetric information between the different
economic agents in this setting and its welfare implications.
My paper “Efficient Upgrading in Network Goods; Is Commitment Always Good?” examines an
incumbent monopolist’s incentives to upgrade a durable network product in the subsequent period,
while facing a potential rival who can produce a version of identical quality. On the normative side, I
investigate whether the market provides the socially optimal technological progress. My results
recognize potential or actual competition as well as the incumbent's commitment power as sources of
inefficiency.
I find that, although the introduction of the new product is not socially efficient when the social cost
of learning how to use it outweighs the social gain from the quality improvement, the market leader
always commits to upgrade when this choice deters the competitor from investing. If the rival's entry
is certain, I show that the incumbent commits not to upgrade because such a choice enables him to
charge sufficiently patient customers more in the present market. This happens as firms' intertemporal
price choices become strategic complements and the incumbent firm can set a higher price today if it
allows the rival to be the sole supplier of an improved product in the future. Furthermore, if the rival
cannot price discriminate between the old and the new users, the incumbent's commitment may cause
old consumers to stick to the old product even though the new version is an important improvement,
while social efficiency is obtained when the incumbent lacks commitment power. Thus, potential or
actual competition are factors of inefficiency.
I am currently working on “RJVs, Value Creation and Network Control”, which investigates firms’
incentives to participate in Joint Research Ventures regarding their future durable network products
in the presence of forward-looking consumers as well as the welfare effects of such projects. Uncertain
future product quality is endogenous and it depends on the outcome of the stochastic R&D processes
related both to the standard used and the specific product characteristics that each firm produces. In
particular, I extend Cabral and Salant (2014), where quality is exogenous and I allow firms to choose to
cooperate in standard setting and compete in the product market.
In “Mergers, Innovation and Welfare in Durable Goods Markets with Network Effects”, I seek to
answer the following important questions related to mergers: In a scenario of sequential innovation,
how do different types of mergers affect firms’ current R&D incentives (and average innovation) under
a scenario of mandatory compatibility and a less interventionist competition law? What is the effect
of mergers on expected consumer surplus? Which types of mergers should be allowed by Competition
Authorities in durable network goods markets, as they seem to scrutinize mergers that only lead to
duopolies but not triopolies due to the potential collusion that may arise in the former case?
Athanasios A. Athanasopoulos
Teaching Fellow in Economics
Department of Economics, University of Warwick, CV4 7AL, United Kingdom
E-mail Address: A.Athanasopoulos.1@warwick.ac.uk
References
1) Bessen, J. and Maskin, E. "Sequential Innovation, Patents, and Imitation." RAND Journal of
Economics, Vol. 40 (2009), pp. 611-635.
2) Cabral, L. and Salant, D. "Evolving Technologies and Standards Regulation." International Journal
of Industrial Organization, Vol. 36 (2014), pp. 48-56.
3) Chen, J., Doraszelski, U. and Harrington, J. E. Jr. "Avoiding Market Dominance: Product
Compatibility in Markets with Network Effects." RAND Journal of Economics, Vol.40 (2009), pp.
455-485.