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Market Competition, R&D And Firm Profits In Asymmetric Oligopoly

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  • JUNICHIRO ISHIDA
  • TOSHIHIRO MATSUMURA
  • NORIAKI MATSUSHIMA

Abstract

We investigate a Cournot model with strategic R&D investments wherein efficient low-cost firms compete against less efficient high-cost firms. We find that an increase in the number of high-cost firms can stimulate R&D by the low-cost firms, while it always reduces R&D by the high-cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low-cost firms' profits may indeed increase with the number of high-cost firms. An implication of this result is far-reaching, as it gives low-cost firms an incentive to help, rather than harm, high-cost competitors. We relate this implication to a practice known 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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  • Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, September.
  • Handle: RePEc:bla:jindec:v:59:y:2011:i:3:p:484-505
    DOI: j.1467-6451.2011.00461.x
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