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Hoernig scientific seminar discussion jeanjean_2017


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Discussion of Jeanjean: Technical progress in the Relationship between Competition and Investment

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Hoernig scientific seminar discussion jeanjean_2017

  1. 1. Discussion of : Jeanjean, Technical Progress in the Relationship between Competition and Investment Steffen Hoernig FSR C&M Scientific Seminar March 24th, 2017
  2. 2. Idea • The paper attempts to show that maximum investment in markets with strong technical progress is achieved under low competitive intensity • This is captured in a model where the level of product differentiation that maximizes discounted investment cost shifts downwards with a larger innovation (cost reduction)
  3. 3. Adequacy of the Model • The research question is pertinent and important, but the theory model employed does not seem capable of capturing the policy-relevant aspects • The “size of the investment” in the model is discounted cost for a given innovation, thus higher discounted cost, ceteris paribus, is a bad not a good • The “amount of investment” in the policy debate relates to outcomes such as coverage, bandwidth, FTTH vs FTTC etc • The game is about timing, not investment cost: higher investment costs are equivalent to earlier investment • The main result of the paper is thus: “larger (more profitable) innovations lead to earlier investments” • What the paper should focus on is how socially optimal investment relates to competitiveness; the amount of investment cost as such is not interesting
  4. 4. Assumptions • The paper has too many assumptions, many of which are hard to justify • Some are not even numbered but simply mentioned in the text • A decisive one is 𝑓 . > 𝑔 . : this does not follow from (1); rather it is essentially the assumption that profits 𝜋 are submodular • Recommendation: try simpler model where “amount of investment” means quality or coverage, i.e. has a positive effect on welfare