Competing or Colluding in a Stochastic Framework
AbstractThis paper addresses the issue of anticompetitive and collusive practices in a continuous-time real option framework. We extend the symmetrical duopoly under uncertainty model by Dixit and Pindyck (1994), by granting a patent to the first innovator that files an application. The patent-investment race model is used to focus on long-term collusive agreements signed under a cooperative bargaining structure. The contributions are as follows. First, we show that, in a stochastic framework, competition always leads to different forms of inefficiency. Second, it is proved that, when entrepreneurs can sign long-term contracts via cooperative bargaining, collusion is always beneficial ex-ante since inefficiency disappears. Third, we show that whilst collusion always delays innovation, it does not necessarily delay competition. Depending on a number of economic, as well as firm-specific factors, collusion can actually accelerate competition.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0504.
Date of creation: Jan 2005
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Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-03-13 (All new papers)
- NEP-COM-2005-03-13 (Industrial Competition)
- NEP-LAW-2005-03-13 (Law & Economics)
- NEP-MIC-2005-03-13 (Microeconomics)
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