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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Date of revision:
Contact details of provider:
Postal: Malet Street, London WC1E 7HX, UK
Phone: 44-20- 76316429
Fax: 44-20- 76316416
Web page: http://www.ems.bbk.ac.uk/
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William E. Kovacic & Carl Shapiro, 2003.
"Antitrust Policy: A Century of Economic and Legal Thinking,"
Law and Economics
- William E. Kovacic & Carl Shapiro, 2000. "Antitrust Policy: A Century of Economic and Legal Thinking," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 43-60, Winter.
- Gilbert, Richard & Tom, Willard K., 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Competition Policy Center, Working Paper Series qt8zv6b8c5, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Marshall, Robert C & Meurer, Michael J & Richard, Jean-Francois, 1994. "Litigation Settlement and Collusion," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 211-39, February.
- Jean O. Lanjouw & Josh Lerner, 1997. "The Enforcement of Intellectual Property Rights: A Survey of the Empirical Literature," NBER Working Papers 6296, National Bureau of Economic Research, Inc.
- Gilbert, Richard & Tom, Willard K, 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Department of Economics, Working Paper Series qt4mf5t2bm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
- Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
- Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, vol. 51(5), pages 1653-79, December.
- Crampes, Claude & Langinier, Corinne, 2002.
"Litigation and Settlement in Patent Infringement Cases,"
Staff General Research Papers
5231, Iowa State University, Department of Economics.
- Claude Crampes & Corinne Langinier, 2002. "Litigation and Settlement in Patent Infringement Cases," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 258-274, Summer.
- Reiss, Ariane, 1998. "Investment in Innovations and Competition: An Option Pricing Approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 635-650.
- Weeds, Helen, 2002.
"Strategic Delay in a Real Options Model of R&D Competition,"
Review of Economic Studies,
Wiley Blackwell, vol. 69(3), pages 729-47, July.
- Weeds, H., 2000. "Strategic Delay in a Real Optimna Model of R&D Competition," The Warwick Economics Research Paper Series (TWERPS) 576, University of Warwick, Department of Economics.
- Thijssen, J.J.J. & Huisman, K.J.M. & Kort, P.M., 2002.
"Symmetric Equilibrium Strategies in Game Theoretical Real Option Models,"
2002-81, Tilburg University, Center for Economic Research.
- Thijssen, Jacco J.J. & Huisman, Kuno J.M. & Kort, Peter M., 2012. "Symmetric equilibrium strategies in game theoretic real option models," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 219-225.
- Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages C97-C116, March.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- F. M. Scherer & Jayashree Watal, 2002. "Post-TRIPS Options for Access to Patented Medicines in Developing Nations," Journal of International Economic Law, Oxford University Press, vol. 5(4), pages 913-939, December.
- Eduardo S. Schwartz, 2003. "Patents and R&D as Real Options," NBER Working Papers 10114, National Bureau of Economic Research, Inc.
- Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
- Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
- Reiko Aoki & Jin-Li Hu, 1996. "Allocation of Legal Costs and Patent Litigation: A Cooperative Game Approach," Industrial Organization 9612001, EconWPA.
- Richard J. Gilbert and Willard K. Tom, 2001. "Is Innovation King at the Antitrust Agencies?: The Intellectual Property Guidelines Five Years Later," Economics Working Papers EC01-301, University of California at Berkeley.
- Richard J. Gilbert & Willard K. Tom, 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Industrial Organization 0106002, EconWPA.
- Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.