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Competing or Colluding in a Stochastic Environment

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  • Adriana Breccia
  • Héctor Salgado Banda
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    Abstract

    This document analyses collusion by innovative firms and the role of patents in a continuous-time real options framework. A patent-investment race model is formulated in which innovative firms bargain and reach collusive agreements. It is shown that, while collusion always delays innovation, it does not necessarily delay competition. Depending on a number of factors, collusion can actually accelerate competition.

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    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B76880BD6-1AA2-1F64-8572-EF2A095A86D1%7D.pdf
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    Bibliographic Info

    Paper provided by Banco de México in its series Working Papers with number 2005-04.

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    Date of creation: Jul 2005
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    Handle: RePEc:bdm:wpaper:2005-04

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    Related research

    Keywords: Bargaining; Collusion; Competition; Geometric Brownian motion; Nash axiomatic approach; Stackelberg game;

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    References

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    1. Richard J. Gilbert & Willard K. Tom, 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Industrial Organization, EconWPA 0106002, EconWPA.
    2. 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.
    3. Thijssen, J.J.J. & Huisman, K.J.M. & Kort, P.M., 2002. "Symmetric Equilibrium Strategies in Game Theoretical Real Option Models," Discussion Paper, Tilburg University, Center for Economic Research 2002-81, Tilburg University, Center for Economic Research.
    4. 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, Oxford University Press, vol. 5(4), pages 913-939, December.
    5. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
    6. 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.
    7. 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.
    8. Reiss, Ariane, 1998. "Investment in Innovations and Competition: An Option Pricing Approach," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 38(3, Part 2), pages 635-650.
    9. 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.
    10. 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.
    11. Reiko Aoki & Jin-Li Hu, 1996. "Allocation of Legal Costs and Patent Litigation: A Cooperative Game Approach," Industrial Organization, EconWPA 9612001, EconWPA.
    12. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
    13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 18(2), pages 155-162, April.
    14. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C97-C116, March.
    15. Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 51(5), pages 1653-79, December.
    16. Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(4), pages 619-643, February.
    17. 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.
    18. Marshall, Robert C & Meurer, Michael J & Richard, Jean-Francois, 1994. "Litigation Settlement and Collusion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 211-39, February.
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