Daniel Spulber

Hagiu, Andrei and Daniel Spulber. 2013. First-Party Content and Coordination in Two-Sided Markets. Management Science. 59(4): 933-949.

The strategic use of first-party content by two-sided platforms is driven by two key factors: the nature of buyer and seller expectations (favorable versus unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). Platforms facing unfavorable expectations face an additional constraint: their prices and first-party content investment need to be such that low (zero) participation equilibria are eliminated. This additional constraint typically leads them to invest more (less) in first-party content relative to platforms facing favorable expectations when first- and third-party content are substitutes (complements). These results hold with both simultaneous and sequential entry of the two sides. With two competing platforms incumbent facing favorable expectations and entrant facing unfavorable expectations and multi-homing on one side of the market, the incumbent always invests (weakly) more in first-party content relative to the case in which it is a monopolist.

Epstein, Richard, F.Scott Kieff and Daniel Spulber. 2012. The FTC, IP, and SSOs: Government Hold-Up Replacing Private Coordination. Journal of Competition Law and Economics. 8(1): 1-46.

In its recent report entitled The Evolving IP Marketplace, the Federal Trade Commission (FTC) advances a far-reaching regulatory approach (Proposal) whose likely effect would be to distort the operation of the intellectual property (IP) marketplace in ways that will hamper the innovation and commercialization of new technologies. The gist of the FTC Proposal is to rely on highly non-standard and misguided definitions of economic terms of art such as ex ante and hold up, while urging new inefficient rules for calculating damages for patent infringement. Stripped of the technicalities, the FTC Proposal would so reduce the costs of infringement by downstream users that the rate of infringement would unduly increase, as potential infringers find it in their interest to abandon the voluntary market in favor of a more attractive system of judicial pricing. As the number of nonmarket transactions increases, the courts will play an ever larger role in deciding the terms on which the patents of one party may be used by another party. The adverse effects of this new trend will do more than reduce the incentives for innovation; it will upset the current set of well-functioning private coordination activities in the IP marketplace that are needed to accomplish the commercialization of new technologies. Such a trend would seriously undermine capital formation, job growth, competition, and the consumer welfare the FTC seeks to promote. In this paper, we examine how these consequences play out in the context of standard-setting organizations(SSOs), whose activities are key to bringing standardized technologies to market. If the FTC's proposed definitions of reasonable royalties and incremental damages damages become the rules for calculating damages in patent infringement cases, the stage will be set to allow the FTC and private actors to attack, after the fact, all standard pricing methods through some combination of antitrust litigation or direct regulation on the ground that such time-honored royalty arrangements involve the use of monopoly power by patent licensors. In consequence, the FTC's Proposal, if adopted, could well encourage potential licensees to adopt the very holdout strategies the FTC purports to address and that well-organized SSOs routinely counteract today. Simply put, the FTC's proposal for regulating IP by limiting the freedom of SSOs to set their own terms would replace private coordination with government hold-up. The FTC should instead abandon its preliminary recommendations and support the current set of licensing tools that have fueled effective innovation and dissemination in the IP marketplace. FTC forbearance from its unwise Proposal will improve bargaining incentives, reduce administrative costs, and remove unnecessary elements of legal uncertainty in the IP system, thereby allowing effective marketplace transactions to advance consumer welfare.

Spulber, Daniel. 2011. Should Business Method Inventions be Patentable?. Journal of Legal Analysis. 3(1): 265-340.

In this article, I define business method inventions and provide an economic framework to address the question of patentability raised in Bilski. A business method invention is the discovery of a commercial technique that firms can apply to address market opportunities. The initial implementation of a business method invention by firms is a Schumpeterian innovation. I advance several arguments in favor of business method patentability. Business method inventions are an important foundation for entrepreneurship and a channel for the commercialization of scientific and technological inventions. IP protections for business method inventions are essential for economic efficiency, including incentives for invention, efficient allocation of inventions, and transaction efficiencies in the market for discoveries. Business method inventions are significant because they are the foundation of what I term, the Business Revolution: the augmentation and replacement of human effort in business transactions by computers, communications systems, and the Internet. I conclude that the patent system should continue to provide intellectual property protections for business method inventions just as it does for other types of inventions. The question in this case turns on whether a patent can be issued for a claimed invention designed for the business world. Bilksi v. Kappos 561 U.S._(2010).

Spulber, Daniel. 2008. Consumer Coordination in the Small and in the Large: Implications for Antitrust in Markets with Network Effects. Journal of Competition Law and Economics. 4(2): 207-262.

Network effects occur in markets when consumers receive mutual benefits from consuming the same good. Markets with network effects that have generated particular policy concerns include the information and communications technology and electronics (ICTE) industries. Many economists and legal scholars argue that the presence of network effects creates a form of market failure known as network externalities and as recommend new forms of antitrust and regulation targeted at particular firms in the ICTE industries. The debate over network effects is likely to have major consequences for these industries, with effects comparable to landmark antitrust cases involving IBM, AT&T, and Microsoft. This article provides a comprehensive examination of network effects that addresses the legal, economic, and technological basis for this phenomenon. The article develops a general framework for examining consumer coordination in markets with network effects. The discussion demonstrates that consumers can coordinate their consumption decisions to obtain the benefits of network effects. When there are small numbers of consumers, as Coase argued, low transaction costs allow the formation of informal agreements and formal contracts that are economically efficient. When there are large numbers of consumers, the market offers many mechanisms of spontaneous order in the sense of Hayek. The article refers to Coasian negotiation as coordination in the small, and to Hayekian spontaneous order as coordination in the large. The discussion demonstrates that consumer coordination, both in the small and in the large, results in efficient consumption of network goods and adoption of new technologies. Market institutions are fully capable of addressing network effects. Antitrust policy based on correcting market failure due to network externalities is likely to impact both competition and innovation adversely. Network effects do not provide a sound basis for antitrust policy.

Spulber, Daniel. 2008. Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft v. Commission. Yale Journal on Regulation. 25(2): 247-301.

Microsoft v. Commission indicates a shift in competition policy at the expense of protections for intellectual property. The case applies essential facilities arguments to Microsoft's server operating system and tying arguments to its Windows Media Player. The dynamic effects of Microsoft v. Commission pose a substantial risk to the incentive to innovate in several ways. First, mandatory licensing and unbundling of the elements of an invention erode intellectual property rights. Second, the targeting of multinational corporations by the European Union creates barriers to international trade whose impacts extend across the global economy. Third, the interpretation of abuse of a dominant position focuses on market outcomes rather than on anticompetitive conduct, thus penalizing successful innovators and rewarding their competitors. Competition policy based on Microsoft v. Commission diminishes the incentive to innovate.

Salvo, Alberto and Daniel Spulber. 2006. CEMEX: International Market Maker in Cement. Journal of Strategic Management Education. 3: 1-24.

The case examines the remarkable international expansion strategy of Cemex, a company that began as a local firm in a developing economy and rose to the top ranks of the global cement industry. Cemex offers a striking example of how a company can take leadership of the process of globalization. The case considers how Cemex took advantage of shifting distribution and communications technologies to establish itself as a market maker in the nascent international trading market for cement. The ability to arbitrage across its many buyer and seller markets, achieved through the acquisition of pivotal assets and investment in superior information technology, has become a key source of competitive advantage for the company. The case illustrates several features of international business, including the design of strategy to meet global competition, modes of entry into international markets, and more generally how the forces of globalization are reshaping the general run of industries.

Spulber, Daniel. 2005. Lenovo: The Leading Chinese Computer Company Enters Global Competition. Journal of Strategic Management Education. 2(1): 55-81.

Lenovo stunned observers with its acquisition of IBM's personal computer division. The case examines the Lenovo group from the time the company was established and considers how Lenovo became the leading Chinese computer company. The case considers the challenges faced by the company with increasing trade liberalization in China and details the initial stages of Lenovos international strategy. The case concludes with Lenovo's acquisition of IBM's personal computer business and considers the issues that must be addressed as Lenovo enters into global competition.

Sidak, J.Gregory and Daniel Spulber. 1997. Givings, Takings, and the Fallacy of Forward-Looking Costs. New York University Law Review. 72(5): 1068-1164.

Mr. Sidak and Professor Spulber extend here the analysis in Deregulatory Takings and Breach of the Regulatory Contract, published last year in this Review. They respond to comments and criticisms raised not only by Professors Baumol and Merrill, but also by Judge Williams and Professor Williamson in their Comments published last year. Sidak and Spulber begin by exploring the constitutional limitations on the government's ability to redefine the public purpose to which a regulated utility has dedicated its private property. Then, the authors examine whether the government has made givings that implicitly compensate the regulated firm for its diminution in value owing to the imposition of policies mandating network unbundling at regulated prices. Sidak and Spulber refine the limiting principles for the recovery of stranded costs that they articulated in their earlier article and show how those principles reconcile with the actual treatment of losses from deregulation in disparate industries. Next, they expose the economic fallacies in the notion of forward-looking costs as that term has been used by the Federal Communications Commission and state public utility commissions to set prices for mandatory network access under the Telecommunications Act of 1996. The authors analyze the Supreme Courts 1996 decision in United States v. Winstar Corp. and argue that the reasoning employed by seven Justices in that case comports not only with earlier decisions of the Court construing the regulatory contract with public utilities, but also with the contemporary economic analysis of why the regulatory contract is essential and efficient. Sidak and Spulber explain how transition bonds may solve the stranded cost conundrum in the telecommunications and electric power industries by permitting the securitization of stranded costs in a manner that restores investors' faith in the state's ability to make credible commitments. Finally, the authors examine the significance of the Eighth Circuit's 1997 decision in Iowa Utilities Board v. FCC for the debate over deregulatory takings and breach of the regulatory contract.

Sidak, J.Gregory and Daniel Spulber. 1996. Deregulatory Takings and Breach of the Regulatory Contract. New York University Law Review. 71(4): 851-999.

Over the past century, as the regulatory state steadily expanded its reach, courts frequently addressed claims that regulatory actions amounted to an unconstitutional taking. Recently, however, legislation in the telecommunications and electric power industries have brought deregulatory concerns to the fore. In this landmark Article, Mr. Sidak and Professor Spulber present the first detailed analysis of the interaction between the Takings Clause, deregulation, network pricing, and contract law. In the typical case of regulated industries, firms and their investors agree to bear considerable incumbent burdens in exchange for a regulated rate of return. Sidak and Spulber first demonstrate that this arrangement represents a regulatory contract and find that recent deregulatory measures constitute breach. The authors then argue that, whether or not a regulatory contract in fact exists, recent mandatory unbundling in the electric power industry and open-access regulation in the telecommunications field effectuate a taking without just compensation. Finally, relying on concepts such as investment-backed expectations and the efficient component-pricing rule, the authors not only demonstrate that damages would be equivalent under either contractor takings theory, but also warn that governments could face enormous liability for their deregulatory measures.

Spulber, Daniel. 1989. The Second Best Core. International Economic Review. 30(3): 623-631.

An economy with a single output and input is considered for the case of economies of scale in production. Equilibria are studied for a cooperative game of joint production in which goods are allocated by a price system. The paper proposes a second best core in which allocations that are feasible for a coalition must be attainable by a price system. Existence is examined and properties of second best core allocations are analysed.

Spulber, Daniel. 1984. Scale Economies and Existence of Sustainable Monopoly Prices. Journal of Economic Theory. 34(1): 149-163.

The size of the firm relative to market demand is crucial to a determination of whether there exist sustainable monopoly prices. In the one product case the size of the firm is its minimum efficient scale. In the multiproduct case size is defined by a set of outputs at which cost complementarities are present. The analysis shows that when the size of the firm is sufficiently large, there exist anonymously equitable Aumann-Shapley prices. Further, at these prices natural monopoly is sustainable against rival entry. The Aumann-Shapley price are also shown to be quantity sustainable in the sense of Brock and Scheinkman.

Mirman, Leonard J. and Daniel Spulber. 1984. Uncertainty and Markets for Renewable Resources. Journal of Economic Dynamics and Control. 8(3): 239-264.

The market allocation of renewable resources is examined when growth rates are affected by random disturbances. Given free access to a renewable resource, environmental disturbances are shown to affect the biological survival of the resource. The optimal solution is then examined and it is shown to be achieved by a competitive allocation when property rights are clearly defined given rational expectations or a complete set of contingent futures markets. The stochastic dynamics are shown in each case to differ considerably from the deterministic model.

Spulber, Daniel and Robert A Becker. 1983. Regulatory Lag and Deregulation with Imperfectly Adjustable Capital. Journal of Economic Dynamics and Control. 6(1): 137-151.

The dynamic effects of regularity lag and deregulation on the behavior of a firm with imperfectly adjustable capital are examined. Given adjustment costs and irreversible investment, the firm reacts in advance to anticipated changes in regulation. In the regulatory lag case, capital increases after regulation is imposed. The Averch-Johnson effect is observed before regulation, but not necessarily afterwards. Sufficient conditions are given for the capital bias to increase. The regulated firm may choose inputs reflecting either a labor or capital bias in anticipation of deregulation. Sufficient conditions are given for the capital bias to be lessened by deregulation.

Spulber, Daniel. 1981. Capacity, Output and Sequential Entry. American Economic Review. 71(3): 503-514.

This paper presents a dynamic model of entry in which established firms pursue a Cournot - Nash (alternatively Stackelberg) strategy toward a potential entrant. The entrant behaves in Cournot-Nash fashion and chooses output on the basis of expected post-entry profits at the equilibrium of the post-entry game. Within this framework, a constant output entry-deterring strategy would in- volve maintenance of an entry-deterring out- put level before and after entry is threatened. An excess capacity entry-deterring strategy would involve holding excess capacity at an entry-deterring level and increasing output to that level after entry is threatened. Special conditions are presented under which the Sylos Postulate or the Excess Capacity Hypothesis will accurately describe optimal entry-deterring strategies. In addition, special conditions are examined under which the established firm maintains a constant output or holds pre-entry excess capacity when large-scale entry does in fact take place. The analysis shows that in general, established firm reactions to entry are quite different from these special cases.

Spulber, Daniel. 2009. Economics and Management of Competitive Strategy. New Jersey: World Scientific Press.

This book provides a comprehensive and integrated approach to management strategy that is based on economics. A basic introductory strategy text that integrates economic analysis with management strategy, it takes into account global competition and high-tech (Internet) developments, and recognizes that companies today can no longer expect to sustain competitive advantage but must rely on innovation (of products, processes, and transactions). Although many of the principles are illustrated with numerical examples, the text does not require a background course in economics or mathematics, and does not contain technical graphs or equations. Thus, the book is suitable for undergraduate managerial economics and strategy courses, as well as for introductory MBA courses in business strategy and as a companion to case studies.