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Strategic Interactions, Social Optimality and Growth

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David Vavra

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Abstract

We focus on the implications of strategic interactions among research intensive firms on the rates of growth when the number of competing firms is small and firms recognise the effects their investment decisions have on the production behaviour of their rivals. Similar to other results, we find that the mode of oligopolist competition can have a great effect on the rate of growth, but we present novel channels of these effects. More importantly and unlike standard results, we show that for the Cournot type of competition, a (constrained) socially optimal rate of growth can be attained. On the other hand, this can never be achieved under the more severe Bertrand competition. These findings are thus parallel to the conclusions in strategic trade literature. Our results demonstrate that conclusions from the "strategic trade" literature are robust enough, if ex- tended into an explicitly dynamic general equilibrium framework. More importantly, though, they make evident that the questions of optimal policy design related to organisational structure and strategic conduct are tractable in the framework of endogenous growth models in sufficient detail.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp199.

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Date of creation: Jul 2002
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Handle: RePEc:cer:papers:wp199

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  1. Smulders, Sjak & van de Klundert, Theo, 1995. "Imperfect competition, concentration and growth with firm-specific R & D," European Economic Review, Elsevier, vol. 39(1), pages 139-160, January. [Downloadable!] (restricted)
  2. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier. [Downloadable!] (restricted)
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  3. Neary, J.P., 1999. "R&D in Developing Countries: What Should Governments Do?," Papers 99/27, College Dublin, Department of Political Economy-.
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  4. Vencatachellum, Desire, 1998. "Endogenous growth with strategic interactions," Journal of Economic Dynamics and Control, Elsevier, vol. 23(2), pages 233-254, September. [Downloadable!] (restricted)
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  6. Baldwin, Richard E. & Forslid, Rikard, 1998. "Trade and growth Any unfinished business?," European Economic Review, Elsevier, vol. 42(3-5), pages 695-703, May. [Downloadable!] (restricted)
  7. van de Klundert, Theo & Smulders, Sjak, 1997. " Growth, Competition and Welfare," Scandinavian Journal of Economics, Blackwell Publishing, vol. 99(1), pages 99-118, March. [Downloadable!] (restricted)
  8. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  9. Romer, Paul M, 1990. "Are Nonconvexities Important for Understanding Growth?," American Economic Review, American Economic Association, vol. 80(2), pages 97-103, May. [Downloadable!] (restricted)
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  10. Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, vol. 35(4), pages 971-1001, May. [Downloadable!] (restricted)
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