Three essays in innovation, competition and contracts

The thesis is composed of three chapters that, in different ways, disentangle the linkage between competition, organization behaviour and structure. In particular, we examine two cases in which changes in market conditions affect firms’ internal organization (chapters 1 and 3); and, one case in which, given a fixed competitive environment, heterogeneous organizations lead to different market outcomes (chapter 2). In chapter 1 we analyse the effect of product market competition on the innovative behaviour of firms. Unlike previous IO models, we distinguish R&D activities into: (1) exploitation - the improvement of an existing technology; and (2) exploration - the development of brand-new techniques. Our results show the existence of a non-monotonic relation between competition and exploration. R&D behaviour is also the main subject of chapter 2. Here we analyse a mixed market where firms choose between risky and safe projects, depending on whether it is basic or applied oriented. We find that, under mild conditions, the Nash equilibrium of the game is one in which state firms always undertake a basic-oriented project. Moreover, we discover a negative indirect effect of the presence of a state owned firm on private firm’s risk taking behaviour. In the last chapter, we investigate the effect of labor market competition on authority allocation between the board of directors and the manager, when the latter has the possibility to influence the board’s decisions. Our results show that, when contracting occurs in isolation, centralization generally dominates delegation. On the opposite side, when the comparison is extended to labor markets, results are reversed. In this case, decentralization emerges as an equilibrium, which is unique when competition is high.