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Incentives To Innovate In Oligopolies


In the spirit of Arrow (1962), we examine, in an oligopoly model with horizontally differentiated products, how much a firm is willing to pay for a process innovation that it would be the only one to use. We show that different measures of competition (number of firms, degree of product differentiation, Cournot vs Bertrand) affect incentives to innovate in non-monotonic, different, and potentially opposite ways.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 79 (2011)
Issue (Month): 1 (January)
Pages: 6-28

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Handle: RePEc:bla:manchs:v:79:y:2011:i:1:p:6-28
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  1. AMIR, Rabah & EVSTIGNEEV, Igor & WOODERS, John, . "Noncooperative versus cooperative R&D with endogenous spillover rates," CORE Discussion Papers RP 1650, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  3. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
  4. Masahiro Okuno-Fujiwara & Kotaro Suzumura, 1990. "Strategic Cost-Reduction Investment and Economic Welfare," Discussion Paper Series a217, Institute of Economic Research, Hitotsubashi University.
  5. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
  6. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
  7. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
  8. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  9. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  10. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, vol. 46(1), pages 201-211, January.
  11. Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
  12. Yi, Sang-Seung, 1999. "Market structure and incentives to innovate: the case of Cournot oligopoly," Economics Letters, Elsevier, vol. 65(3), pages 379-388, December.
  13. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  14. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
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