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Stochastic Innovation and Product Market Organization

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  • Reynolds, Stanley S
  • Isaac, R Mark

Abstract

This paper analyzes how different types of product market organization affect firms' R&D investments in a stochastic innovation framework. Product market competition determines payoffs to successful and unsuccessful firms. Restrictions on the research project success probability distribution are identified that yield an invariance result for expenditure per R&D project. The impact of the number of firms (n) on the amount of market R&D is shown to be sensitive to product market organization. For a major process innovation, firms undertake more R&D projects under Cournot product market competition than under Bertrand competition, for "n" sufficiently large. A numerical example is used to illustrate welfare tradeoffs.

Suggested Citation

  • Reynolds, Stanley S & Isaac, R Mark, 1992. "Stochastic Innovation and Product Market Organization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(4), pages 525-545, October.
    • Handle: RePEc:spr:joecth:v:2:y:1992:i:4:p:525-45
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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. Hamid Beladi & Arijit Mukherjee, 2022. "R&D competition and the persistence of technology leadership," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 272-284, September.
    3. Klaus Abbink & Jordi Brandts, 2005. "Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies," Working Papers 168, Barcelona School of Economics.
    4. Yang, Gaoju & Wang, Fang & Huang, Xianhai & Chen, Hangyu, 2022. "Human capital inflow, firm innovation and patent mix," Journal of Asian Economics, Elsevier, vol. 79(C).
    5. Richard J. Gilbert, 2019. "Competition, Mergers, and R&D Diversity," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 465-484, May.

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