Research Interests

  • Innovation 
  • Competition Policy
  • Multinational Enterprises​

Current Research

The Breakup of Bell and its Impact on Innovation

with Martin Watzinger
Draft coming soon.
This paper analyzes the effects of the 1984 breakup of the Bell System, the largest telecommunications company at the time, on the rate and direction of innovation in the U.S. The aim of the breakup was to end exclusionary practices that Bell allegedly used against competitors. After the breakup, patenting by U.S. inventors increased by 19%. This increase was concentrated in telecommunications technologies and was driven by existing companies. We also find that the diversity of innovation, in terms of different approaches to the same technology, increased. Our results suggest that exclusionary behavior can lead to "missing innovations".

Does tax policy work when consumers have imperfect price information? Theory and evidence

with Felix Montag and Alina Sagimuldina, LMU Munich
July 2021
CESifo Working Paper/voxEU Column  
We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions. First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.

VAT reduction as unconventional fiscal policy in Germany:
Fast but heterogeneous pass-through in the fuel market

with Felix Montag and Alina Sagimuldina
An updated version of this paper with the title "Does tax policy work when consumers have imperfect price information? Theory and evidence" can be found above.

Patents on General Purpose Technologies: Evidence from the Diffusion of the Transistor 

with Markus Nagler, University of Nürnberg and Martin Watzinger, University of Münster
CEPR Discussion Paper No. 15713 / VoxEU / CRC-Discussion Paper No. 297 /accepted at Journal of Industrial Economics

How do patents influence the spread of General Purpose Technologies (GPT)? To answer this question, we analyze the diffusion of the transistor, one of the most important technologies of our time. After AT&T began licensing the transistor on standardized terms in 1952, the diffusion of the transistor technology and especially cross-technology spillovers increased dramatically. This suggests that patents on GPTs may hinder the positive feedback loop between innovation in upstream and in application sectors, the primary reason why GPTs produce unusually large productivity improvements. Standardized licensing increased innovation and market entry in particular by unrelated inventors in unconcentrated markets.

Standing on the shoulders of science

with Martin Watzinger, University of Münster and Josh Krieger, Harvard
HBS working paper / CEPR Discussion Paper / VoxEu  / Patent novelty data / R&R in Strategic Management Journal
Today's innovations rely on scientific discoveries of the past, yet only some corporate R&D builds directly on scientific output. We analyze U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that patents which build directly on science are on average 26% more valuable than patents in the same technology that are disconnected from science. Patents closer to science are also more likely to be in the tails of the value distribution (i.e., greater risk and greater reward). Based on patent text analysis, we next show that patent novelty predicts their value. Finally, we find that science-intensive patents are more novel. Overall, using science appears to help firms capture more value through relatively novel inventions.

How antitrust can spur innovation: ​Bell Labs and the 1956 consent decree

with Martin Watzinger, Thomas Fackler and Markus Nagler
 Download / VoxEU/ Link to CEPR Discussion Paper / Link to published version (complimentary access)
​AEJ: Policy 12.4 (2020): 328-59.

Winner of the  AEJ Best Paper Awards

Is compulsory licensing an effective antitrust remedy to increase innovation? To answer this question, we analyze the 1956 consent decree which settled an antitrust lawsuit against Bell, a vertically integrated monopolist charged with foreclosing the telecommunications equipment market. Bell was forced to license all its existing patents royalty-free, including those not related to telecommunications. We show that this led to a long-lasting increase in innovation but only in markets outside the telecommunications industry. Within telecommunications, where Bell continued to exclude competitors, we find no effect. Compulsory licensing is an effective antitrust remedy only if incumbents cannot foreclose the product markets.

Media:
New York Times / Latest Thinking / Stanford Law Revice  / The Register / Fast Company / American Progress / The Conversation 

Measuring the Spillovers of Venture Capital

with Martin Watzinger
Link to CEPR Discussion Paper / VoxEU 
Review of Economics and Statistics, 104.2 (2022): 276-292.​

We provide the first measurement of knowledge spillovers from venture capital-financed companies onto the patenting activities of other companies. On average, these spillovers are nine times larger than those generated by the R&D investment of established companies. Spillover effects are larger in complex product industries than in discrete product industries. Start-ups with experienced inventors holding a patent at the time of receiving the first round of investment produce the largest spillovers, indicating that venture capital fosters the commercialization of technologies. Methodologically, we contribute by developing a novel definition of the spillover pool, combining citation-based and technological proximity-based approaches.

Multinational firms and tax havens

with Anna Gumpert and James Hines
Review of Economics and Statistics 2016, Vol. 98 (4), 713-727
 Substantially revised version of "The use of tax havens in exemption regimes" 2011, NBER working paper 17644.

Multinational firms with operations in high-tax countries can benefit the most from reallocating taxable income to tax havens, though this is sufficiently difficult and costly that only 20.4 percent of German multinational firms have any tax haven affiliates. Among German manufacturing firms, a one percentage point higher foreign tax rate is associated with a 0.3 percentage point greater likelihood of owning a tax haven affiliate. This is consistent with tax avoidance incentives, and contrasts with earlier evidence for U.S. firms. The relationship is less strong for firms in service industries, possibly reflecting the difficulty of reallocating taxable service income.

Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity

with Franziska Bremus, Claudia Buch and Katheryn Russ
Journal of Money, Credit and Banking, 2018, vol 50(8), 1785-1825
2013, NBER working paper 19093.
Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups. Using this framework, we show conditions under which idiosyncratic shocks to bank lending can generate aggregate fluctuations in the credit supply when the banking sector is highly concentrated. We empirically assess the relevance of these granular effects in banking using a linked micro-macro dataset of more than 80 countries for the years 1995-2009. The banking sector for many countries is indeed granular, as the right tail of the bank size distribution follows a power law. We then demonstrate granular effects in the banking sector on macroeconomic outcomes. The presence of big banks measured by high market concentration is associated with a positive and significant relationship between bank-level credit growth and aggregate growth of credit or gross domestic product.

Publications

Books

  • "Contracts in Trade and Transition: The Resurgence of Barter" (with Dalia Marin), Cambridge and London: MIT Press, 2002

Statements & Reports

  • Analyse der Beweggründe, der Ursachen und der Auswirkungen des so genannten Offshoring auf Arbeitsplätze und Wirtschaftsstruktur in Deutschland (mit Claudia Buch, Christian Arndt, Iris Kesternich, Anselm Mattes, Christian Mugele, Harald Strotmann), Gutachten erstellt im Auftrag des Bundesministeriums für Wirtschaft und Technologie, Tübingen/München  2007
  • Non-Horizontal Mergers Guidelines: Ten Principles, A Note by the EAGCP Merger-Subgroup, (mit Marc Ivaldi, Bruce Lyons, John van Reenen, Frank Verboven, Nikos Vettas, Xavier Vives), erstellt für die Economic Advisory Group for Competition Policy des Chief Economist, DG Competition, Europäische Kommission, Brüssel 2007