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A Dynamic Analysis Of Cooperative Research In The Semiconductor Industry

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  • Minjae Song

Abstract

The 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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File URL: http://hdl.handle.net/10.1111/j.1468-2354.2011.00663.x
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Bibliographic Info

Article 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)
Pages: 1157-1177

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Handle: RePEc:ier:iecrev:v:52:y:2011:i:4:p:1157-1177

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Cited by:
  1. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Computational Methods for Oblivious Equilibrium," Research Papers 1969, Stanford University, Graduate School of Business.
  2. Christopher Laincz, 2009. "R&D subsidies in a model of growth with dynamic market structure," Journal of Evolutionary Economics, Springer, vol. 19(5), pages 643-673, October.
  3. Ralph Siebert & Klaus Gugler, 2004. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," NBER Working Papers 10323, National Bureau of Economic Research, Inc.
  4. Gabriel Weintraub & C. Lanier Benkard & Ben Van Roy, 2005. "Markov Perfect Industry Dynamics with Many Firms," NBER Working Papers 11900, National Bureau of Economic Research, Inc.
  5. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Markov Perfect Industry Dynamics with Many Firms," Research Papers 1919r, Stanford University, Graduate School of Business.
  6. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2005. "Markov perfect industry dynamics with many firms," Working Paper Series 2005-23, Federal Reserve Bank of San Francisco.
  7. Borkovsky, Ron N. & Doraszelski, Ulrich & Kryukov, Yaroslav, 2009. "A Dynamic Quality Ladder Model with Entry and Exit: Exploring the Equilibrium Correspondence Using the Homotopy Method," CEPR Discussion Papers 7560, C.E.P.R. Discussion Papers.
  8. Joao Macieira, 2010. "Oblivious Equilibrium in Dynamic Discrete Games," 2010 Meeting Papers 680, Society for Economic Dynamics.
  9. Joao Macieira, 2007. "Extending the Frontier: A Structural Model of Investment and Technological Competition in the Supercomputer Industry," Working Papers e07-10, Virginia Polytechnic Institute and State University, Department of Economics.

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