Incentive Compatible Collusion and Investment
AbstractWe consider a two-stage model in which two firms first invest in R&D to reduce their marginal production costs, and then either compete or collude in the output market. When they collude, they bargain over a cartel agreement to divide the collusive profit. If bargaining breaks down, they revert to duopolistic competition. For both a location model and a linear demand model, we show that firms invest more in R&D in the first stage under collusion than under competition. We demonstrate via example that social welfare may be greater under collusion than under competition in the location model.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 6 (2005)
Issue (Month): 1 (May)
Collusion; Competition; R&D investment;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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