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R&D Activities in Oligopoly and Social Welfare

Author

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  • Prokop Jacek

    (Department of Economics II, Warsaw School of Economics, Poland)

  • Wiśnicki Bartłomiej

    (Warsaw School of Economics, Poland)

Abstract

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.

Suggested Citation

  • Prokop Jacek & Wiśnicki Bartłomiej, 2015. "R&D Activities in Oligopoly and Social Welfare," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 46(1), pages 134-146, June.
    • Handle: RePEc:vrs:ijomae:v:46:y:2015:i:1:p:134-146:n:6
    DOI: 10.1515/ijme-2015-0025
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    References listed on IDEAS

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    1. Nicholas Bloom & Mark Schankerman & John Van Reenen, 2013. "Identifying Technology Spillovers and Product Market Rivalry," Econometrica, Econometric Society, vol. 81(4), pages 1347-1393, July.
    2. Prokop, Jacek & Karbowski, Adam, 2013. "R&D cooperation and industry cartelization," Economics Discussion Papers 2013-41, Kiel Institute for the World Economy (IfW Kiel).
    3. De Fraja, Gianni & Silipo, Damiano Bruno, 2002. "Product market competition, R&D, and welfare," Research in Economics, Elsevier, vol. 56(4), pages 381-397, December.
    4. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
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    Cited by:

    1. Karbowski, Adam & Kryśkiewicz, Łukasz & Prokop, Jacek, 2018. "Kartele jako przedmiot polityki gospodarczej [Cartels in Public Policy Perspective]," MPRA Paper 90364, University Library of Munich, Germany, revised 2018.
    2. Adam Karbowski & Jacek Prokop, 2018. "R&D activities of enterprises, product market leadership, and collusion," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 735-753.
    3. Karbowski, Adam & Prokop, Jacek, 2016. "Wybrane zagadnienia współpracy badawczo-rozwojowej przedsiębiorstw w ujęciu ekonomii gałęziowej [Selected problems of interfirm R&D cooperation in the industrial organization literature]," MPRA Paper 72784, University Library of Munich, Germany.

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