Do Investments in Specialized Knowledge Lead to Composite Good Industries?

Antoine Soubeyran and Hubert Stahn

Small Business Economics, 2007, vol. 29, issue 1, 119-135

Abstract: We try to understand why firms producing goods by means of complementary components do not merge, especially in industries in which investments in component-based knowledge matters. As Audretsch, we state that these activities are developed by “individuals” who do their best to appropriate the return from their knowledge and whose effort is non-contractible. The organization of the industry into firms is identified to a partition of the set of individuals. In this context, we prove that an organization in which each individual hold his own firms is both stable with respect to unilateral deviation and optimal in the line of the property right approach. If the returns are high enough, this structure is even the only one which shares both properties. Copyright Springer 2007

Keywords: composite goods; dual Cournot competition; lateral disintegration; incomplete contracts; property rights; D23; D43; L22 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11187-006-0008-9

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