Discussionof:Jeanjean,TechnicalProgressinthe

RelationshipbetweenCompetitionandInvestment

SteffenHoernigFSRC&MScientificSeminar

March24th,2017

Idea

• Thepaperattemptstoshowthatmaximuminvestmentinmarketswithstrongtechnicalprogressisachievedunderlowcompetitiveintensity

• Thisiscapturedinamodelwherethelevelofproductdifferentiationthatmaximizesdiscountedinvestmentcostshiftsdownwardswithalargerinnovation(costreduction)

AdequacyoftheModel• Theresearchquestionispertinentandimportant,butthe

theorymodelemployeddoesnotseemcapableofcapturingthepolicy-relevantaspects

• The“sizeoftheinvestment”inthemodelisdiscountedcostforagiven innovation,thushigherdiscountedcost,ceterisparibus,isabad notagood

• The“amountofinvestment”inthepolicydebaterelatestooutcomes suchascoverage,bandwidth,FTTHvsFTTCetc

• Thegameisabouttiming,notinvestmentcost:higherinvestmentcostsareequivalenttoearlierinvestment

• Themainresultofthepaperisthus:“larger(moreprofitable)innovationsleadtoearlierinvestments”

• Whatthepapershouldfocusonishowsociallyoptimalinvestmentrelatestocompetitiveness;theamountofinvestmentcostassuchisnotinteresting

Assumptions

• Thepaperhastoomanyassumptions,manyofwhicharehardtojustify

• Somearenotevennumberedbutsimplymentionedinthetext

• Adecisiveoneis𝑓 . > 𝑔 . :thisdoesnotfollowfrom(1);ratheritisessentiallytheassumptionthatprofits𝜋 aresubmodular

• Recommendation:trysimplermodelwhere“amountofinvestment”meansqualityorcoverage,i.e.hasapositive effectonwelfare