Work in Progress

Working papers

Competition and Innovation: The Breakup of IG Farben

R&R at American Economic Review
Discussion Paper: Here SSRN - Updated 12/2024
Coverage: FAZ (German) ProMarket FinReg

Single-authored

IG Farben patenting in comparison to firms in electronics industry (Synthetic control) — **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 technologies where the breakup reduced concentration by creating multiple successor firms with technological capabilities, patenting increased strongly, predominantly by domestic firms unrelated to IG Farben. The increase in patenting is not driven by alternative explanations such as product market competition, an increased propensity to patent, duplication of research, or mobility of IG Farben inventors. Instead, the breakup seems to have increased innovation among the IG Farben successors, which then spilled over to the broader industry: The IG Farben’s successors also increased their patenting activities and specialized relative to the pre-breakup period.

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 technologies where the breakup reduced concentration by creating multiple successor firms with technological capabilities, patenting increased strongly, predominantly by domestic firms unrelated to IG Farben. The increase in patenting is not driven by alternative explanations such as product market competition, an increased propensity to patent, duplication of research, or mobility of IG Farben inventors. Instead, the breakup seems to have increased innovation among the IG Farben successors, which then spilled over to the broader industry: The IG Farben’s successors also increased their patenting activities and specialized relative to the pre-breakup period.

Competing for Talent: Large Firms and Startup Growth

with James Bessen and Ronja Röttger
R&R at Strategic Management Journal
Discussion Paper: SSRN
Coverage: HBR

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.

Innovate to Lobby? European Firms and Corporate Lobbying during Climate Change Regulation

with Nilanjana Ditt and Yifan Tian
Discussion Paper: SSRN

Regression: European Green New Deal Effect on Lobbying Meetings, by green innovativeness and carbon intensity — **Abstract** Which firms are more likely to lobby regulators about green policy: those producing more or fewer green innovations? The answer is not obvious. On one hand, highly green-innovative firms may prefer to concentrate on innovation, since their internal technological capabilities reduce their need for outside information. On the other hand, the innovativeness of their technologies gives them reason to seek regulatory access: to learn how policy will evolve and to position their innovations for commercial success. We argue that the answer turns on a second dimension: a firm’s exposure to climate regulation. Because exposure raises the value of regulatory information most for firms able to act on it, green innovativeness and climate exposure should be complements, with access concentrated among firms high on both. We examine this in the context of the European Union’s 2019 European Green Deal (EGD), which sharply increased regulatory uncertainty. Using data on 2,038 publicly listed European firms over 2015-2023, we combine EU lobbying meeting disclosures with firm-level green-patent and carbon-intensity measures. Exploiting the unexpected elevation of climate policy in 2019, we show that green lobbying rose sharply afterward, driven primarily by firms that are both highly green-innovative and highly carbon-intensive: consistent with the two dimensions operating as complements rather than as independent motives. Our findings show that green innovation and lobbying rise jointly under regulatory change, advancing research on non-market strategy and corporate innovation.

Wordcloud: Subjects of green meetings between European public companies and European Commission — **Abstract** Which firms are more likely to lobby regulators about green policy: those producing more or fewer green innovations? The answer is not obvious. On one hand, highly green-innovative firms may prefer to concentrate on innovation, since their internal technological capabilities reduce their need for outside information. On the other hand, the innovativeness of their technologies gives them reason to seek regulatory access: to learn how policy will evolve and to position their innovations for commercial success. We argue that the answer turns on a second dimension: a firm’s exposure to climate regulation. Because exposure raises the value of regulatory information most for firms able to act on it, green innovativeness and climate exposure should be complements, with access concentrated among firms high on both. We examine this in the context of the European Union’s 2019 European Green Deal (EGD), which sharply increased regulatory uncertainty. Using data on 2,038 publicly listed European firms over 2015-2023, we combine EU lobbying meeting disclosures with firm-level green-patent and carbon-intensity measures. Exploiting the unexpected elevation of climate policy in 2019, we show that green lobbying rose sharply afterward, driven primarily by firms that are both highly green-innovative and highly carbon-intensive: consistent with the two dimensions operating as complements rather than as independent motives. Our findings show that green innovation and lobbying rise jointly under regulatory change, advancing research on non-market strategy and corporate innovation.

In Progress

Valuing Patents: Technological Uncertainty and Appropriation

with John McKeon and Timothy Simcoe

Abstract (Preliminary) Consistently measuring the value of patents across a wide range of technologies and contexts has long been a challenge for technology managers and researchers. In this context, stock market-based valuations have recently become popular. We propose that such valuations are best understood as the expected value of the intellectual property right at grant, factoring in technological uncertainty and the degree to which the patent will facilitate appropriation of eventual commercial value. We empirically demonstrate the role of uncertainty and appropriation in the context of pharmaceutical patenting and among AI patents. First, we find that stock market abnormal returns indicate that patents issued later in the drug-development process are more valuable, even though these ``secondary'' patents are generally seen as weaker than the more highly cited patents covering a new molecule. Consistent with this, we show that the valuation of AI patents increases strongly after the viability of a certain technology is demonstrated publicly. Second, in the context of pharmaceuticals, we show that a firm's ability to capture value from a given patent is associated with its stock market return. We find valuation premia for secondary patents that extend the monopoly-life of a drug, and for some new-use and continuation patents.

Directed Technical Change with Information Disclosure

with Shirley Tang and Xina Li

Abstract (Preliminary) This study investigates how a patchwork of state information disclosure policies, public pressure, and regulatory risks affect the adoption of green fracking fluid inputs by publicly traded and private oil companies in the US. We theoretically and empirically show that as public pressure increases, public firms claim fewer trade secrets and use fewer toxic chemicals, suggesting a preference for greener alternatives. Conversely, private firms report fewer toxic chemicals but increase their trade secrets claims, implying potential concealment of toxic inputs as trade secrets. Further analysis indicates that after the 2016 election, private firms reported fewer trade secrets and more toxic chemicals, suggesting reduced concerns about regulatory risks. Moreover, private firms are more likely to adopt cleaner chemicals when they observe more public firms successfully using them, indicating a spillover effect in technology adoption. The study underscores the complex relationship between policy, firm heterogeneity, and nonmarket pressure in driving directed technical change.