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Incentives To Innovate In Oligopolies

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  • PAUL BELLEFLAMME
  • CECILIA VERGARI

Abstract

In the spirit of Arrow (1962), we examine, in an oligopoly model with horizontally differentiated products, how much a firm is willing to pay for a process innovation that it would be the only one to use. We show that different measures of competition (number of firms, degree of product differentiation, Cournot vs Bertrand) affect incentives to innovate in non-monotonic, different, and potentially opposite ways.

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File URL: http://hdl.handle.net/10.1111/j.1467-9957.2009.02131.x
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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 79 (2011)
Issue (Month): 1 (January)
Pages: 6-28

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Handle: RePEc:bla:manchs:v:79:y:2011:i:1:p:6-28

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References

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  1. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
  3. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 75(1), pages 213-229, July.
  4. Yi, Sang-Seung, 1999. "Market structure and incentives to innovate: the case of Cournot oligopoly," Economics Letters, Elsevier, Elsevier, vol. 65(3), pages 379-388, December.
  5. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(4), pages 495-510, July.
  6. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, University of Manchester, vol. 70(1), pages 7-15, January.
  7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  8. AMIR, Rabah & EVSTIGNEEV, Igor & WOODERS, John, 2001. "Noncooperative versus cooperative R&D with endogenous spillover rates," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Papers, Tilburg - Center for Economic Research 9136, Tilburg - Center for Economic Research.
  10. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 101-21, January.
  11. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(5), pages 705-726, April.
  12. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, Elsevier, vol. 46(1), pages 201-211, January.
  13. Masahiro Okuno-Fujiwara & Kotaro Suzumura, 1990. "Strategic Cost-Reduction Investment and Economic Welfare," Discussion Paper Series, Institute of Economic Research, Hitotsubashi University a217, Institute of Economic Research, Hitotsubashi University.
  14. Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
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Citations

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Cited by:
  1. Benjamin Rene Kern & Juan Manuel Mantilla Contreras, 2014. "Mergers and the Incentives to Undertake Product Innovation Oriented R&D: First Steps Towards an Assessment Approach," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201417, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. ONORI, Daria, 2010. "Competition and growth: reinterpreting their relationship," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2010033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Francisco Martínez-Sánchez, 2007. "The Role of an Imitating Firm in a Dynamic Context," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, Universidad de Antioquia, Departamento de Economía, issue 67, pages 225-240, Julio-Dic.
  4. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Philipp Weinscheink, 2010. "Entry and Incumbent Innovation," Working Paper Series of the Max Planck Institute for Research on Collective Goods, Max Planck Institute for Research on Collective Goods 2010_17, Max Planck Institute for Research on Collective Goods.
  6. Nicola Lacetera & Lorenzo Zirulia, 2011. "Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision," NBER Working Papers 17031, National Bureau of Economic Research, Inc.
  7. Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 832-842.
  8. Steinmetz, Alexander, 2010. "Competition, innovation, and the effect of knowledge accumulation," W.E.P. - Würzburg Economic Papers 81, University of Würzburg, Chair for Monetary Policy and International Economics.

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