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Knowledge Spillovers, Mergers and Public Policy in Economic Clusters

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  • George Norman
  • Lynne Pepall

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Abstract

This paper investigates how market concentration affects research activity in an economic cluster. The firms in the cluster play a two-stage game. In the first stage the firms choose whether or not to engage in costly research that generates technological improvements that spill over to the other firms in the cluster. The more firms engaged in research the richer or more profitable is the pool of knowledge that spills over. In the second stage after the knowledge spillovers have occurred, firms compete in quantities. We solve for the symmetric mixed strategy equilibrium to the first stage of the game, and find that too low a degree of concentration in the cluster will destroy firms’ incentives to undertake research and so the cluster risks stagnation. We explore whether a merger can stimulate research activity by increasing concentration in the cluster. Finally, we consider a public policy response to stagnation and analyze whether a direct public subsidy to stimulate research is preferable to a self-financing arrangement. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • George Norman & Lynne Pepall, 2004. "Knowledge Spillovers, Mergers and Public Policy in Economic Clusters," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(2), pages 155-174, June.
  • Handle: RePEc:kap:revind:v:25:y:2004:i:2:p:155-174
    DOI: 10.1007/s11151-004-1928-7
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    References listed on IDEAS

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    Cited by:

    1. repec:wsi:ijitmx:v:15:y:2018:i:02:n:s0219877018500104 is not listed on IDEAS
    2. Chia-Lin Chang & Michael McAleer & Ju-Ting Tang, 2013. "International Technology Diffusion of Joint and Cross-border Patents," Documentos de Trabajo del ICAE 2013-27, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    3. Marie-Laure Cabon-Dhersin & Emmanuelle Taugourdeau, 2015. "Research clusters: How public subsidies matter," Documents de travail du Centre d'Economie de la Sorbonne 15013, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. Chia-Lin Chang & Michael McAleer & Ju-Ting Tang, 2018. "Joint and Cross-Border Patents as Proxies for International Technology Diffusion," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-29, April.
    5. Chia-Lin Chang & Michael McAleer & Ju-Ting Tang, "undated". "International Technology Diffusion of Joint and Cross-border Patents (Revised version)," Documentos de Trabajo del ICAE 2015-06, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised May 2015.
    6. Marie-Laure Cabon-Dhersin & Romain Gibert, 2017. "Cooperation or non-cooperation in R&D: how should research be funded? ," Working Papers hal-01587014, HAL.
    7. Toni Ahlqvist, 2014. "Building Innovation Excellence of World Class: The Cluster as an Instrument of Spatial Governance in the European Union," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(5), pages 1712-1731, September.

    More about this item

    Keywords

    Agglomeration; clusters; mergers; perfect spillovers;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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