A Dynamic Analysis Of Cooperative Research In The Semiconductor Industry
AbstractThe paper has two objectives. The first is to construct a dynamic model of research joint ventures (RJVs) in which firms competing in the product market cooperate in investing to improve generic manufacturing technology. The second objective is to analyze cooperative research led by SEMATECH in the semiconductor industry using the dynamic model. The estimation consists of two stages. In the first stage, consumer demand is estimated using product level data, and state variables are constructed to reflect a technological advance and an evolution of firms' competitiveness in the product market. In the second stage, research expenditure level and firms' value functions are computed for every combination of the state variables as solutions to the dynamic model. I also compute firms' research expenditures for competitive research by making firms unilaterally invest in research. The results show that in RJVs firms' research expenditures go down to one fifth of what they would spend in competitive research. Lower research expenditure results in higher net profits in RJVs, although variable profits are similar in all regimes. RJVs are also more likely to generate higher consumer surplus than competitive research. This is because, while consumers benefit from more frequent introductions of higher quality products in competitive research, they occasionally pay higher prices than they do in RJVs for the same quality products. The net effect is that consumers are hurt more by higher price in competitive research than by less frequent introductions of new products in RJVs. Firms also make different research decisions for the same changes in the product market conditions, depending on whether they cooperate or compete in research
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 52 (2011)
Issue (Month): 4 (November)
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Other versions of this item:
- Minjae Song, 2006. "A Dynamic Analysis of Cooperative Research in the Semiconductor Industry," 2006 Meeting Papers 468, Society for Economic Dynamics.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
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