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The Invariance of Market Innovation to the Number of Firms

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  • Raaj Kumar Sah
  • Joseph E. Stiglitz

Abstract

This article provides a set of conditions under which the R&D undertaken in a market economy is invariant to the number (or size distribution) of firms and the market's allocation is efficient (i.e., given the aggregate expenditure, the market chooses socially optimal projects). As in several patent race studies, we assume that a "winner-takes-all" competition determines firms' gains, but our model differs from earlier studies in that firms are not restricted to undertake only one research project. Our analysis shows that how one characterizes a firm's choices (and innovation technologies) has a strong influence on the conclusions one draws from economic analyses of R&D.

Suggested Citation

  • Raaj Kumar Sah & Joseph E. Stiglitz, 1987. "The Invariance of Market Innovation to the Number of Firms," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 98-108, Spring.
  • Handle: RePEc:rje:randje:v:18:y:1987:i:spring:p:98-108
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    References listed on IDEAS

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    1. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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    Cited by:

    1. Igor Letina, 2016. "The road not taken: competition and the R&D portfolio," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 433-460, May.
    2. Yevgeniy Popov & Maksim Vlasov & Anna Shishkina & Anastasia Yakimova, 2016. "Institutional Analysis of Knowledge Generation Resource Potential at the Enterprises of Regional Military-Industrial Complex," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 839-851.
    3. Bhattacharya, Sudipto & Glazer, Jacob & Sappington, David E. M., 1992. "Licensing and the sharing of knowledge in research joint ventures," Journal of Economic Theory, Elsevier, vol. 56(1), pages 43-69, February.
    4. Svetlana Panikarova & Maxim Vlasov, 2016. "Knowledge Generation Strategies: Empirical Analysis of Industrial Enterprises," Journal of Information & Knowledge Management (JIKM), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-11, June.
    5. Wittwer, Milena, 2017. "Centralizing Disconnected Markets? An Irrelevance Result," MPRA Paper 76534, University Library of Munich, Germany.
    6. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters,in: Innovation Policy and the Economy, Volume 6, pages 159-215 National Bureau of Economic Research, Inc.
    7. Gambardella, Alfonso, 2013. "The economic value of patented inventions: Thoughts and some open questions," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 626-633.

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