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Strategic Interactions, Social Optimality and Growth

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  • David Vavra

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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Bibliographic Info

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. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. J.P. Neary, 2000. "R&D in Developing Countries: What Should Governments Do?," CEP Discussion Papers, Centre for Economic Performance, LSE dp0464, Centre for Economic Performance, LSE.
  3. Vencatachellum, Desire, 1998. "Endogenous growth with strategic interactions," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(2), pages 233-254, September.
  4. van de Klundert, Theo & Smulders, Sjak, 1997. " Growth, Competition and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 99(1), pages 99-118, March.
  5. Smulders, J.A. & Klundert, T.C.M.J. van de, 1995. "Imperfect competition, concentration and growth with firm-specific R&D," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-153407, Tilburg University.
  6. Romer, Paul M, 1990. "Are Nonconvexities Important for Understanding Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 97-103, May.
  7. Peretto, Pietro F., 1995. "Sunk Costs, Market Structure, and Growth," Working Papers, Duke University, Department of Economics 95-34, Duke University, Department of Economics.
  8. Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, Elsevier, vol. 35(4), pages 971-1001, May.
  9. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  11. Baldwin, Richard E. & Forslid, Rikard, 1998. "Trade and growth Any unfinished business?," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 695-703, May.
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Cited by:
  1. Vahagn Jerbashian, 2011. "The Telecommunications Industry and Economic Growth: How the Market Structure Matters," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp431, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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