IDEAS home Printed from https://ideas.repec.org/p/ste/nystbu/08-5.html
   My bibliography  Save this paper

Subsidies, Entry and the Distribution of R&D Investment

Author

Listed:
  • John Asker
  • Mariagiovanna Baccara

Abstract

We analyze the link between entry and R&D spending distribution. We consider a monopolistic competitive market with free entry in which firms can invest in cost-cutting R&D by paying a fixed cost first. For an intermediate level of fixed cost, there is a unique equilibrium in which the market segments into investing and non-investing firms. We show that the measure of R&D investing firms decreases as entry occurs. Using this result, we show how alternative government policies affect the R&D spending distribution. In particular, we characterize the cases in which incentives to promote R&D spending can result in exit. We show that while subsidy to entry may be welfare neutral from the consumers' point of view, R&D subsidies, despite promoting exit sometimes, are always welfare improving. Data motivating these results are drawn from the Taiwanese and Korean semiconductor industries.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • John Asker & Mariagiovanna Baccara, 2008. "Subsidies, Entry and the Distribution of R&D Investment," Working Papers 08-5, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:08-5
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 81-99.
    2. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
    3. Reinganum, Jennifer F, 1982. "A Dynamic Game of R and D: Patent Protection and Competitive Behavior," Econometrica, Econometric Society, vol. 50(3), pages 671-688, May.
    4. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
    5. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, December.
    6. 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.
    7. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 53-82.
    8. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 429-436.
    9. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 395-410.
    10. Fishman, Arthur & Rob, Rafael, 1999. "The Size of Firms and R&D Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 915-931, November.
    11. Yi Daniel Xu, 2008. "A Structural Empirical Model of R&D, Firm Heterogeneity , and Industry Evolution," 2008 Meeting Papers 744, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Natália Barbosa & Ana Paula Faria & Vasco Eiriz, 2014. "Industry- and firm-specific factors of innovation novelty," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 23(3), pages 865-902.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 159-215, National Bureau of Economic Research, Inc.
    2. Matros, Alexander & Smirnov, Vladimir, 2016. "Duplicative search," Games and Economic Behavior, Elsevier, vol. 99(C), pages 1-22.
    3. Ronald Goettler & Brett Gordon, 2014. "Competition and product innovation in dynamic oligopoly," Quantitative Marketing and Economics (QME), Springer, vol. 12(1), pages 1-42, March.
    4. Nguyen, Thang, 2004. "Technological Progress in Races for Product Supremacy," MPRA Paper 235, University Library of Munich, Germany, revised 18 Jul 2006.
    5. Marshall, Guillermo & Parra, Álvaro, 2019. "Innovation and competition: The role of the product market," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 221-247.
    6. Harabi, Najib, 1994. "Technischer Fortschritt in der Schweiz: Empirische Ergebnisse aus industrieökonomischer Sicht [Technischer Fortschritt in der Schweiz:Empirische Ergebnisse aus industrieökonomischer Sicht]," MPRA Paper 6725, University Library of Munich, Germany.
    7. Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.
    8. Christos Koulovatianos & Leonard J. Mirman, 2003. "R&D Investment, Market Structure, and Industry Growth," University of Cyprus Working Papers in Economics 8-2003, University of Cyprus Department of Economics.
    9. Aldieri, Luigi & Aprile, Maria Carmela & Vinci, Concetto Paolo, 2015. "R&D Spillovers Effects on strategic behaviour of Large International Firms," MPRA Paper 63402, University Library of Munich, Germany.
    10. Uwe Cantner & Werner Güth & Andreas Nicklisch & Torsten Weiland, 2009. "Competition In Product Design: An Experiment Exploring Innovation Behavior," Metroeconomica, Wiley Blackwell, vol. 60(4), pages 724-752, November.
    11. By Kenneth L. Judd & Karl Schmedders & Şevin Yeltekin, 2012. "Optimal Rules For Patent Races," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 23-52, February.
    12. Mulligan, Casey B. & Tsui, Kevin K., 2015. "Political entry, public policies, and the economy," Research in Economics, Elsevier, vol. 69(3), pages 377-397.
    13. Mathias Erlei & Anne-Kathrin Dimmig, 2012. "Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty," TUC Working Papers in Economics 0008, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    14. Richard C. Levin & Peter C. Reiss, 1989. "Cost-Reducing and Demand-Creating R&D With Spillovers," NBER Working Papers 2876, National Bureau of Economic Research, Inc.
    15. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
    16. de Roos, Nicolas & Matros, Alexander & Smirnov, Vladimir & Wait, Andrew, 2018. "Shipwrecks and treasure hunters," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 259-283.
    17. Harabi, Najib, 1991. "Einflussfaktoren von Forschung und Entwicklung in der Schweizer Industrie: Ergebnisse einer schriftlichen Expertenbefragung [Factors Affecting Research and Development - Results of a Survey in Swis," MPRA Paper 5257, University Library of Munich, Germany.
    18. Matros, Alexander & Ponomareva, Natalia & Smirnov, Vladimir & Wait, Andrew, 2019. "Search without observability," Working Papers 2019-04, University of Sydney, School of Economics.
    19. Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March.
    20. Matros, Alexander & Ponomareva, Natalia & Smirnov, Vladimir & Wait, Andrew, 2022. "Search without looking," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ste:nystbu:08-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Amanda Murphy (email available below). General contact details of provider: https://edirc.repec.org/data/ednyuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.