In an extended version of d'Aspremont and Jacquemin's (1988) R&D competition model, we identify a region where the game is a prisoner's dilemma in that region firms' optimal strategy still prescribes to invest in R&D. However, they would obtain a higher profit by not investing at all. A standard Folk Theorem argument suggests that firms implicitly tend to collude and refrain from investing in R&D when their interaction is repeated. When this happens, social welfare shrinks, but we argue that promoting joint research constitutes a remedy to the lack of innovation efforts, rather than the excess thereof.
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Volume (Year): 10 (2010)
Issue (Month): 1 (July)
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References listed on IDEAS
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