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Advantageous or Disadvantageous Semi-collusion

Author

Listed:
  • Arijit Mukherjee

    (Keele University, Department of Economics)

Abstract

This paper compares profits and consumer surplus under non-cooperation and collusion in the product market when the firms have the option for R&D before production. We show that whether R&D investment would be higher under noncooperation or product market collusion depends on the R&D productivity. If the market size is sufficiently small then firms are always better off under product market collusion. If the market size is moderate (relatively large) then the firms are better off under non-cooperation (semi-collusion) for sufficiently lower pre-innovation costs of production.We also show that in case of moderate (relatively large) market size, firms are better off under non-cooperation for relatively lower (higher) R&D productivity. However, we find that consumer welfare is always higher under non-cooperation in product market compared to collusion in product market.

Suggested Citation

  • Arijit Mukherjee, 2002. "Advantageous or Disadvantageous Semi-collusion," Keele Economics Research Papers KERP 2002/10, Centre for Economic Research, Keele University.
    • Handle: RePEc:kee:kerpuk:2002/10
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0210.pdf
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    More about this item

    Keywords

    Entry; Consumer surplus; Collusion; Profit; Uncertain R&D;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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