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R&D As A Prisoner'S Dilemma And R&D‐Avoiding Cartels

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  • RABAH AMIR
  • FILOMENA GARCIA
  • CHRISTINE HALMENSCHLAGER
  • JOANA PAIS

Abstract

Duopoly firms engaged in a standard two-stage game of R&D and Cournot competition are caught in a prisoner's dilemma for their R&D decisions whenever spillover effects are low. This effect works to the advantage of consumers and society. This result provides an interesting perspective on the well‐known wedge between private and social incentives for R&D. The prisoner's dilemma is the key effect behind this wedge under low spillovers. The latter take over when sufficiently high, as is widely recognized. This mutually exclusive nature of the prisoner's dilemma and significant spillovers also serves to explain the incentives to form R&D cartels.

Suggested Citation

  • Rabah Amir & Filomena Garcia & Christine Halmenschlager & Joana Pais, 2011. "R&D As A Prisoner'S Dilemma And R&D‐Avoiding Cartels," Manchester School, University of Manchester, vol. 79(1), pages 81-99, January.
  • Handle: RePEc:bla:manchs:v:79:y:2011:i:1:p:81-99
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    File URL: http://hdl.handle.net/10.1111/j.1467-9957.2010.02233.x
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    References listed on IDEAS

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    1. Rabah Amir, 2000. "R&D Returns, Market Structure, and Research Joint Ventures," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 583-583, December.
    2. Jim Y. Jin & Michael Troege, 2006. "R&D Competition And Endogenous Spillovers," Manchester School, University of Manchester, vol. 74(1), pages 40-51, January.
    3. W. Salant, Stephen & Shaffer, Greg, 1998. "Optimal asymmetric strategies in research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 195-208, March.
    4. Bernstein, Jeffrey I & Nadiri, M Ishaq, 1988. "Interindustry R&D Spillovers, Rates of Return, and Production in High-Tech Industries," American Economic Review, American Economic Association, vol. 78(2), pages 429-434, May.
    5. Martin, Stephen, 1996. "R & D joint ventures and tacit product market collusion," European Journal of Political Economy, Elsevier, vol. 11(4), pages 733-741, April.
    6. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
    7. Jeroen Hinloopen, 2000. "More on subsidizing cooperative and noncooperative R&D in duopoly with spillovers," Journal of Economics, Springer, vol. 72(3), pages 295-308, October.
    8. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-1306, December.
    9. Ruff, Larry E., 1969. "Research and technological progress in a cournot economy," Journal of Economic Theory, Elsevier, vol. 1(4), pages 397-415, December.
    10. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
    11. Michael L. Katz, 1986. "An Analysis of Cooperative Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 527-543, Winter.
    12. De Bondt, Raymond & Slaets, Patrick & Cassiman, Bruno, 1992. "The degree of spillovers and the number of rivals for maximum effective R &D," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 35-54, March.
    13. Hauenschild, Nils, 2003. "On the role of input and output spillovers when R&D projects are risky," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1065-1089, October.
    14. Rabah Amir & John Wooders, 1998. "Cooperation vs. competition in R&D: The role of stability of equilibrium," Journal of Economics, Springer, vol. 67(1), pages 63-73, February.
    15. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-357, September.
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    Cited by:

    1. Marco A. Marini & Maria L. Petit & Roberta Sestini, 2014. "Strategic timing in R&D agreements," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(3), pages 274-303, April.
    2. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.
    3. Burr, Chrystie & Knauff, Malgorzata & Stepanova, Anna, 2013. "On the prisoner’s dilemma in R&D with input spillovers and incentives for R&D cooperation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 254-261.

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