Cost Reduction, Competitive Pressure and Firms' Optimal R&D Strategies in a Duopolistic Industry (original) (raw)

Cooperation and Competition in a Duopoly R&D Market

In a general setting with uncertainty and spillovers in R&D activity, we consider the incentive to cooperate among firms at any or all of the following three stages. Firms can jointly agree on the level of R&D expenditures, they can set up joint research facilities, and/or they can engage in an information sharing agreements, by which they agree to share any findings with the other firm. We compare expenditures on R&D, profit levels, and welfare levels across the different possible cooperative and competitive setups and offer antitrust implications. Our model differs from previous analyses in three important ways. First, most studies consider only research aimed at lowering production costs, and therefore consider only situations where total profits fall as spillovers increase. We allow for the possibility of product innovation, and define the concepts of offsetting spillovers (falling total profits) and incremental spillovers (when total profits increase as spillovers increase). Se...

A dynamic model of R&D competition

Research in Economics, 2002

This study considers a dynamic model of R&D competition in a situation of no uncertainty with identical firms in a perfect foresight. We are going to find out about the effects of firms' absorptive capacity on R&D strategies in the presence of technological spillovers. The conditions for the existence and uniqueness of a feedback±Nash equilibrium on firms' R&D expense will be also discussed. Numerical simulations will show as the introduction of the absorptive capacity reduces the impact of spillovers degree on firms' R&D strategies.

Does it Pay to Innovate First? A Dynamic Duopoly with R&D Spillovers

2004

We analyze a dynamic duopoly where fir m sh a v ei ne a c hp e r i o dt h e possibility to make a once-and-for-all R&D investment. The latter generates a cost saving innovation to the innovative firm and a spillover over the R&D investment cost of the non-innovative firm. We show, differently from D'Aspremont and Jacquemin [1988] where firms have an incentive to innovate immediately, that the spillover may induce a war of attrition equilibrium, where both firms would like the rival to innovate first. Last, by comparing the non-cooperative regime with the RJV case, we show that R&D cooperation may increase welfare even if the spillover is relatively small. JEL classification: O33, L13, L41

In A Model Of Differentiated Duopoly With R&D

2000

We construct a model of differentiated duopoly with process R&D when goods are substitutes. In the first stage firms decide their technologies (i.e., the average costs of production) and in the second stage they compete in quantities or prices. We have shown that not only the Cournot firms invest a larger amount on R&D than the Bertrand firms, but, contrary

Downstream R&D Rivalry with Spillovers and Discriminatory Input Pricing

Australian Economic Papers, 2008

This paper examines how discriminatory input pricing by the upstream monopolist affects the R&D choices of downstream duopolists in the presence of R&D spillovers. We show that the monopoly supplier can benefit from a precommitment to uniform pricing because under uniform pricing the downstream firms invest more in R&D, leading to larger output and thus benefiting the supplier. When R&D spillovers are sufficiently large, the downstream firms are also better off under uniform pricing. Moreover, social welfare is always higher under uniform pricing. I. I n t r o d u c t i o n This paper combines the literature on R&D choices and input-market price discrimination in an analysis of how the profits of the upstream and downstream firms and social welfare are affected by R&D spillovers, R&D investment, and input pricing schemes. R&D spillovers are frequently invoked in empirical and theoretical research related to R&D, and the existing literature has shown that R&D spillovers are prevalent and pivotal. The paper is related to the literature on R&D competition and/or cooperation in oligopoly with R&D spillovers, mainly focused on how R&D efforts are affected by the level of R&D spillovers. 1 More explicitly, the focus of the paper is on strategic R&D investment games and on process innovation to reduce production costs. In a seminal paper, d'Aspremont and Jacquemin (1988), henceforth AJ, show that cooperative R&D levels exceed non-cooperative R&D levels when the degree of spillovers exceeds 0.5, and vice versa. Many subsequent papers have adopted their framework with modifications to analyse other related issues. For example, Kamien et al. (1992), henceforth KMZ, extend the AJ model to more firms than two, a general concave R&D production function, differentiated products, and Bertrand price completion; 2 Suzumura (1992) extends the AJ model to general demand function. There are also many papers considering different issues, such as product innovation, vertical cooperation, international research joint venture, and absorptive capacity. 3

R&D and production behaviour of asymmetric duopoly subject to knowledge spillovers

2000

We construct an asymmetric duopolistic R&D and production behavior model subject to knowledge spillovers. This model is an extension to the symmetric model of d’Aspremont and Jacquemin (A&J (1988)) and aims to determine the cooperative and non-cooperative R&D strategies for two agents of different size. The paper concludes that the introduction of asymmetry into the A&J (1988) model leads to

R&D and Production Behavior of Asymmetric Duopoly Subject to Knowledge Spillovers

2000

We construct an asymmetri c duopolistic R&D and production behavior model subject to knowledge spillovers. This model is an extension to the symmetric model of d'Aspremont and Jacquemin (A&J (1988)) and aims to determine the cooperative and non-cooperative R&D strategies for two agents of different size. The paper concludes that the introduction of asymmetry into the A&J (1988) model leads

MARKET COMPETITION, R&D AND FIRM PROFITS IN ASYMMETRIC OLIGOPOLY*

The Journal of Industrial Economics, 2011

We investigate a Cournot model with strategic R&D investments wherein efficient low‐cost firms compete against less efficient high‐cost firms. We find that an increase in the number of high‐cost firms can stimulate R&D by the low‐cost firms, while it always reduces R&D by the high‐cost firms. More importantly, this force can be strong enough to compensate for the loss that

Cooperation and competition in an R&D market with spillovers

Research in Economics, 2005

In a general setting with uncertainty and spillovers in R&D activity, we consider the incentive to cooperate among firms at any or all of the following three stages. Firms can jointly agree on the level of R&D expenditures, they can set up joint research facilities, and/or they can engage in an information sharing agreements, by which they agree to share any findings with the other firm. We compare expenditures on R&D, profit levels, and welfare levels across the different possible cooperative and competitive setups and offer antitrust implications. Our model differs from previous analyses in three important ways. First, most studies consider only research aimed at lowering production costs, and therefore consider only situations where total industry profits fall as spillovers increase. We allow for the industry profits to increase, and define the concepts of offsetting spillovers (falling total profits) and incremental spillovers (when total profits increase as spillovers increase). Second, we consider a wider variety of cooperation possibilities than do most prior studies. Finally, we use far more general functional forms than is usual in the literature.

Cooperation and competition in an R&D market with spillovers

Ssrn Electronic Journal, 2003

In a general setting with uncertainty and spillovers in R&D activity, we consider the incentive to cooperate among firms at any or all of the following three stages. Firms can jointly agree on the level of R&D expenditures, they can set up joint research facilities, and/or they can engage in an information sharing agreements, by which they agree to share any findings with the other firm. We compare expenditures on R&D, profit levels, and welfare levels across the different possible cooperative and competitive setups and offer antitrust implications. Our model differs from previous analyses in three important ways. First, most studies consider only research aimed at lowering production costs, and therefore consider only situations where total industry profits fall as spillovers increase. We allow for the industry profits to increase, and define the concepts of offsetting spillovers (falling total profits) and incremental spillovers (when total profits increase as spillovers increase). Second, we consider a wider variety of cooperation possibilities than do most prior studies. Finally, we use far more general functional forms than is usual in the literature.