Junichiro Ishida (Osaka School of International Public Policy (OSIPP),Osaka University) Toshihiro Matsumura (Institute of Social Science, University of Tokyo) Noriaki Matsushima (Graduate School of Business Administration, Kobe University)
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A conventional wisdom in economics posits that more intense market competition, measured in almost any way, reduces firm profit. In this paper, we challenge this conventional wisdom in a simple Cournot model with strategic R&D investments wherein an efficient firm (dominant firm) competes against less efficient firms (fringe firms). We find that an increase in the number of fringe firms can stimulate R&D by the dominant firm, while it always reduces R&D by each of the fringe firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the dominant firm's profit may indeed increase with the number of fringe firms, quite contrary to the conventional wisdom. An implication of this result is far-reaching, as it gives dominant firms to help, rather than harm, fringe competitors. We relate this implication to a practice know as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.
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Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number
08E011.
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