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===Question A.1: The Bayh-Dole Act of 1980===
The U.S. Bayh-Dole Act of 1980 has led most U.S. universities (including the University of California) to require that faculty disclose potentially patentable intellectual property to their employing institution. Universities then elect whether or not to patent and license the IP to firms. Numerous European governments and the Japanese government have passed broadly similar legislation that involves a requirement for faculty to disclose intellectual property to their universities, arguing that such a requirement is necessary to encourage technology transfer. By contrast, both Sweden and Germany have preserved what is known in both nations as the "professor’s privilege," which grants ownership of the results of their research to faculty. a.) How does the professor’s privilege affect university-industry technology transfer in the nations maintaining it?
b.) What are the likely effects of the professor’s privilege on the level and characteristics (e.g., patent importance) of patents on academic research results?
c.) How would you test the predictions associated with your answer to (b)?
a.) Explore the role of complementarities in the innovation process. To what extent has the modern literature on "platform" and n-sided markets sharpened our understanding of complementarities.
b.) What can economics teach about the creation of markets and new ecosystems? How can firms build "platforms" to help stimulate the development of new markets.
Two firms are selling a product in an online market. This product costs zero for each firm to produce. There is a unit mass of consumers in this market. A fraction <math>\lambda\,</math> of these consumers view the goods as perfect substitutes and simply buy from the firm offering the lowest price provided it doesn't exceed their maximal willingness to pay. The remaining fraction <math>1 - \lambda\,</math> of consumers infer quality from price. They expect that the firm offering the lowest price must be providing an inferior version of the good. Hence, these consumers purchase from whichever firm offers the highest price provided it doesn't exceed their maximal willingness to pay. All consumers have unit demand and a maximal willingness to pay of 1.
Firms compete in this market by simultaneously making price offers. Every consumer sees both price offers and then makes a purchase decision. In the event both firms offer the same price, consumers are split evenly in the market. Everyone is risk-neutral in the model and consumers buy even if the price is exactly equal to their willingness to pay.
a) Write down firm 1's optimization problem.
b) Suppose that <math>\lambda\,</math> < ½. Find a symmetric pricing equilibrium.
c) Suppose that <math>1 > \lambda > \frac{1}{2}\,</math>. Find a symmetric pricing equilibrium.
d) Now suppose that Consumer Reports tests the products of both firms and reveals to all consumers that the two firms' products are identical in every respect. Find a symmetric pricing equilibrium. Relative to the case where <math>\lambda < \frac {1}{2}\,</math> what is the value to consumers (in terms of realized consumer surplus) of the information provided by Consumer Reports?
===Question B.2: Opportunistic sellers===
Consider an economy with many identical Buyers that can each engage in a transaction with one of many sellers. For concreteness, imagine that there are more buyers than sellers and that the market for transactions must clear. The transaction can either succeed or fail. Each buyer’s value of "success" is 1 and of "failure" is 0.
There are two kinds of Sellers. A proportion <math>1 - \beta\,</math> are "good" and they succeed with probability <math>p > 0\,</math>. A proportion <math>\beta\,</math> are "opportunistic" and can choose some effort, <math>e \in [0,1]\,</math> at a personal cost of <math>c(e)\,</math> where <math>c'(0) = 0, c'(1) = \infinity\,</math> and <math>c''(e) > 0 \;\forall e = 0\,</math>. The opportunistic types succeed with probability <math>ep\,</math>.
