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R&D competition versus R&D cooperation in oligopolistic markets with evolving structure

  • Dawid, H.
  • Kopel, M.
  • Kort, P.M.

This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to implement a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 5 ()
Pages: 527-537

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Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:527-537
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Cellini, Roberto & Lambertini, Luca, 2009. "Dynamic R&D with spillovers: Competition vs cooperation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 568-582, March.
  2. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2010. "On the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 383-389, July.
  3. Erkal, Nisvan & Piccinin, Daniel, 2010. "Cooperative R&D under uncertainty with free entry," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 74-85, January.
  4. Bourreau, Marc & Dogan, Pinar, 2010. "Cooperation in Product Development and Process R&D Between Competitors," Scholarly Articles 4863170, Harvard Kennedy School of Government.
  5. Cellini, Roberto & Lambertini, Luca, 2002. "A differential game approach to investment in product differentiation," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 51-62, November.
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  10. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
  11. 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.
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  15. repec:cup:cbooks:9780521637329 is not listed on IDEAS
  16. Hagedoorn, John, 2002. "Inter-firm R&D partnerships: an overview of major trends and patterns since 1960," Research Policy, Elsevier, vol. 31(4), pages 477-492, May.
  17. Doraszelski, Ulrich, 2003. " An R&D Race with Knowledge Accumulation," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 20-42, Spring.
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