Working papers

Competition and Innovation: The Breakup of IG Farben

Rej&R at American Economic Review
Discussion Paper Here (SSRN Twitter)
Coverage FAZ (German) ProMarket FinReg


IG Farben patenting in comparison to firms in electronics industry (Synthetic control) Regression: Quality-weighted patent count
Abstract The relationship between competition and innovation is difficult to disentangle, as exogenous variation in market structure is rare. The 1952 breakup of Germany’s leading chemical company, IG Farben, represents such a disruption. After the Second World War, the Allies occupying Germany imposed the breakup because of IG Farben’s importance for the German war economy instead of standard antitrust concerns. In technology areas where the breakup reduced concentration, patenting increased strongly, driven by domestic firms unrelated to IG Farben. An analysis of patent texts shows that an increased propensity to patent does not drive the effect. Descriptively, IG Farben’s successors increased their patenting activities as well, and their patenting specialized relative to the pre-breakup period. The results are consistent with a breakup-induced innovation increase by the IG Farben successors, which then spilled over to the wider chemical industry.

Like Stars: How Firms Learn at Scientific Conferences

Accepted at Management Science - Current version Here (SSRN)

with Stefano Baruffaldi

(Older version entitled ‘A Firm Scientific Community: Industry Participation and Knowledge Diffusion’: IZA DP)

Citation counts by type of authors’ affiliation and conference rank Stylized empirical setup Heterogeneity of the effect of Participation by participation intensity of the firm
Abstract Scientific conferences are an underexplored channel by which firms learn from science. Although attendance per se may be sufficient to lower search costs in relation to scientific knowledge, we show that active participation and corporate investments in reputation are necessary to establish the personal connections that act as the key learning channel. Using data from conference papers in computer science since the 1990s, we show that corporate investments in participation are both frequent and highly skewed, some firms contributing to a given conference scientifically, some as sponsors, and some doing both. We use direct flights as an instrumental variable for the probability that other scientists participate in the same conference as a firm and find that this increases the firm’s use of the scientists’ knowledge. However, the most significant benefits accrue if the firm seeks the spotlight by both sponsoring the conference and taking part in its scientific discourse. Additional analyses show that these efforts foretell research collaborations and suggest that participation is more relevant in circumstances where the conference helps to trigger personal interactions, even when knowledge search costs are otherwise low.

Profit Taxation, R&D Spending and Innovation

Accepted at American Economic Journal: Economic Policy
Discussion Paper SSRN CEPR DP Twitter
Coverage VoxEU

with Andreas Lichter, Max Löffler, Ingo Isphording, Thu-Van Nguyen and Sebastian Siegloch

The Effect of a Business Tax Increase on Total R&D Spending
Abstract We study how profit taxation affects plants’ R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987-2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants’ R&D spending with an implied long-run elasticity of -1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.

Filling the Gap: The Consequences of Collaborator Loss in Corporate R&D

R&R at Management Science
Discussion Paper Here (SSRN)

with Fabian Gaessler, Karin Hoisl, Dietmar Harhoff and Matthias Dorner

(Older version entitled ‘Filling the Gap - Firm Strategies for Human Capital Loss’: AOM Best Paper)

Abstract We examine how collaborator loss affects knowledge workers in corporate R&D. We argue that such a loss affects the remaining collaborators not only by reducing their team-specific capital (as argued in the prior literature) but also by increasing their bargaining power over the employer, who is in need of filling the gap left by the lost collaborator to ensure the continuation of R&D projects. This shift in bargaining power may, in turn, lead to benefits, such as additional resources or more attractive working conditions. These benefits can partially compensate for the negative effect of reduced team-specific capital on productivity and influence the career trajectories of the remaining collaborators. We empirically investigate the consequences of collaborator loss by exploiting 845 unexpected deaths of active inventors. We find that inventor death has a moderate negative effect on the productivity of the remaining collaborators. This negative effect disappears when we focus on the remaining collaborators who work for the same employer as the deceased inventor. Moreover, this group is more likely to be promoted and less likely to leave their current employer.

Competing for Talent: Large Firms and Startup Growth

with James Bessen and Ronja Röttger
Discussion Paper on SSRN

Abstract This paper explores the impact of large firms’ hiring in local labor markets on the salaries offered by startups and on startup growth and performance. We analyze firm data matched to help-wanted ads and find strong evidence of “crowding out.” A standard deviation increase in the share of ads posted by large firms raises startup pay offers by 5-10% for critical managerial, STEM, and sales jobs, and it reduces expected startup growth by 36%. Crowding is diminished by employee mobility and by spillovers to startups in closely related businesses. It is increased by big firm markups, which may have a large effect on startups. Results are robust to a shift-share instrumental variable strategy. Crowding has important implications for firm strategy, regional policy, and for understanding the slowdown in the aggregate growth of startup firms.

In Progress

Valuing Pharmaceutical Patent Thickets

with John McKeon and Timothy Simcoe

Abstract (Preliminary) Policymakers have expressed concerns about strategic use of the patent system by pharmaceutical companies. Motivated by those concerns, we study the valuation of patents throughout the drug development life cycle. We propose a simple model of patent value that highlights the resolution of scientific uncertainty as well as the impact of new patents on market exclusivity. Using data on patenting throughout the drug development process, we find that stock market event studies indicate that patents issued later in the drug-development process are more valuable, even though these "secondary" patents are generally viewed as weaker than the more highly cited patents covering a new molecule. In regressions that control for uncertainty, we find that additional exclusivity, continuation status, and new use classification remain important factors to explain patenting and patent value.