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Product competition and R&D investment under spillovers within full or partial collusion games

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  • Kai Zhao

Abstract

The paper investigates firms’ behavior and outcomes (levels of cost-reducing R&D, output, profit and welfare in equilibrium) in a differentiated duopoly with process innovation. One of the important features in this paper is that spillovers operate in the R&D stage and are tied to the degree of product substitutability as well as the extent of technological proximity/alienation of the research paths leading to cost reduction. Using this feature, the paper tries to explore and compare four separate organization setups (Full Competition, Semi-collusion in Production, Semi-collusion in R&D and Full Collusion). It is found that under technological proximity, competitions at the upstream stage depress R&D investment, and firms colluding in R&D regardless of their production strategy always yield more profit and generate higher social welfare than firms colluding in output; under technological alienation, R&D cooperation may reduce firms’ interest to invest in R&D, and it is possible that firms in the Full Collusion regime produce most and generate the highest level of social welfare. Copyright The Author(s) 2015

Suggested Citation

  • Kai Zhao, 2015. "Product competition and R&D investment under spillovers within full or partial collusion games," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 24(1), pages 1-27, December.
    • Handle: RePEc:spr:laecrv:v:24:y:2015:i:1:p:1-27:10.1007/s40503-015-0018-6
    DOI: 10.1007/s40503-015-0018-6
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    References listed on IDEAS

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    Cited by:

    1. Zhou, Jie & Zhou, Wei & Chu, Tong & Chang, Ying-xiang & Huang, Meng-jia, 2019. "Bifurcation, intermittent chaos and multi-stability in a two-stage Cournot game with R&D spillover and product differentiation," Applied Mathematics and Computation, Elsevier, vol. 341(C), pages 358-378.
    2. Jose de Jesus Herrera-Velasquez, 2020. "Allocating Investments in Conglomerate Mergers: A Game Theoretic Approach," KIER Working Papers 1038, Kyoto University, Institute of Economic Research.
    3. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.

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    More about this item

    Keywords

    R&D; Spillover; Semi-collusion; Product differentiation; Horizontal merger; D43; L13; O31;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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