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R&D Portfolio and Market Structure

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  • Illoong Kwon

Abstract

This article analyses how firms allocate their resources when they compete for multiple patents in heterogeneous research projects simultaneously. A simple model shows that firms' resource allocation is biased away from risky and basic research, even when imitation is not possible and firms are fully rational. Therefore a market may lack major innovations despite large aggregate research expenditure and strong patent protection. This article also shows that as a market becomes more competitive, firms invest relatively less in basic research but more in risky research. These results provide a novel explanation for an ambiguous empirical relationship between innovation and market concentration. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • Illoong Kwon, 2010. "R&D Portfolio and Market Structure," Economic Journal, Royal Economic Society, vol. 120(543), pages 313-323, March.
  • Handle: RePEc:ecj:econjl:v:120:y:2010:i:543:p:313-323
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    Cited by:

    1. Igor Letina, 2013. "The road not taken: competition and the R&D portfolio," ECON - Working Papers 127, Department of Economics - University of Zurich, revised Aug 2015.
    2. Chen, Yongmin & Pan, Shiyuan & Zhang, Tianle, 2016. "Patentability, R&D direction, and cumulative innovation," MPRA Paper 73180, University Library of Munich, Germany.
    3. Barge-Gil, Andrés & López, Alberto, 2014. "R&D determinants: Accounting for the differences between research and development," Research Policy, Elsevier, vol. 43(9), pages 1634-1648.

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