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Anti-competitive conduct, in-house R&D, and growth

  • Grossmann, Volker
  • Steger, Thomas M.

Incumbent firms have two basic possibilities to improve their competitive position in the product market: Investment in R&D and the creation of entry barriers to the disadvantage of potential rivals, e.g. through lobbying activities, campaign contributions, bribes or the adoption of incompatible technologies. This paper proposes a simple oligopoly model which raises the possibility that such anti-competitive conduct and R&D investment are complementary activities for incumbents. Consequently, an institutional framework or technological possibilities which encourage anti-competitive conduct, although impeding entry of potential rivals and accentuating standard oligopoly distortions, may foster R&D-based growth and welfare. However, this outcome is less likely if entrants exert technological spillover effects, e.g. through foreign direct investment. Stronger protection of intellectual property rights, although triggering anti-competitive conduct and thereby impeding market entry as well, is more likely to foster economic growth.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 6 (August)
Pages: 987-1008

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Handle: RePEc:eee:eecrev:v:52:y:2008:i:6:p:987-1008
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