Competition, Innovation and Welfare* (original) (raw)
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R&D Activities in Oligopoly and Social Welfare
International Journal of Management and Economics, 2015
This paper analyzes the impact of R&D activities in an oligopoly on consumer surplus and social welfare. We use a two-stage model to analyze the behavior of duopolists at the research level, and in the final-product market, under the assumption of linear and quadratic cost functions. Three options for firm competition are considered: 1) Cournot competition at both stages; 2) cooperation at the R&D stage and Cournot competition in the final-product market; and 3) cooperation at both stages. Numerical simulations for various levels of R&D spillovers are conducted to analyze the welfare effects of firm decisions. We conclude that for high levels of technological spillovers, total welfare is highest when firms engage in cooperation at the R&D stage, and compete in the final product market, independent of the shape of cost functions. However, the functional form of production costs has a qualitative impact on welfare when firms fully compete.
Product market competition, R&D, and welfare
Research in Economics, 2002
We compare the subgame perfect equilibrium emerging in four regimes of research and development (R&D) competition between duopolists: (i) full competition, (ii) coordination of research strategies, (iii) joint venture with cross licensing of patents, and (iv) full collusion in R&D and the product market. The outcome of the firms' interaction depends on the interplay of the degree of product market
Cournot And Bertrand Prices In A Model Of Differentiated Duopoly With R&D
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 to the result in the literature, Cournot price can be less than Bertrand price. This occurs when the R&D technology is relatively inefficient.
Technological Spillovers, Product Market Rivalry and R&D Investment
2018
We investigate the determinants of the sign of R&D reaction functions of two rival firms. Using a two-stage Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results corroborate the validity of the theoretical model.
Innovations, patent races and endogenous growth
Journal of Economic Growth, 2011
This paper presents a model of innovations and endogenous economic growth with two main assumptions: first, the cost of searching for innovations differs across innovations, and second, innovations take time to find. The paper shows that given these two assumptions together, competition leads to patent races and to duplication of innovative activity. The paper then shows that duplication significantly reduces the effect of scale on growth. It also shows that competitive R&D creates too much research on easy innovations, and too little research on the difficult ones. Finally, the paper shows that risk sharing might increase duplication and reduce growth.
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
Competition and innovation with horizontal R&D spillovers
Journal of Economic Studies, 2017
Purpose The purpose of this paper is to extend a theoretical framework for analyzing competition and innovation in the presence of horizontal spillovers. Design/methodology/approach A theoretical analysis approach is adopted to drive the paper’s findings. Findings It is shown that when firms behave non-cooperatively in both the R&D and production stages, the degree of spillover has a negative relationship with the effective and respective R&D expenditures of each firm as well as the level of social welfare. An inverted-U relationship between competition and social welfare also holds. When firms behave cooperatively in the R&D stage, and non-cooperatively in the production stage the relationship between the R&D expenditure of the joint research lab and the number of firms in the market is negative. Originality/value In the literature on R&D spillovers and process innovation, efforts are mostly focused on the comparative R&D expenditures and the relative social welfare between non-coo...
2016
The paper extends a theoretical framework for analyzing competition and innovation in presence of horizontal spillovers. Introducing two scenarios, it is shown that when firms behave non-cooperatively in both the R&D and production stages the degree of spillover has a negative relationship with the effective and respective R&D expenditures of each firm as well as the level of social welfare. When firms behave cooperatively in the R&D stage, and non-cooperatively in the production stage the relationship between the R&D expenditure of the joint research lab and the number of firms in the market is negative.
Public Policy towards R&D in a Mixed Duopoly with Spillovers
2006
Abstract This paper investigates the use of subsidies to R&D, both in a mixed and a private oligopoly markets. We show that the socially optimal subsidy is positive and increasing in the degree of spillovers in both the private and the mixed duopoly, although it is lower for the former than for the latter. We also find support for the empirical claim that privatisation is followed by a scaling down of the R&D activity.