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Incentives to Innovate in a Cournot Oligopoly

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  • F. Delbono
  • V. Denicolo

Abstract

We study the R&D performance of Cournot aligopolists. To this end we model a one-shot noncooperative game in which firms invest in R&D, with the aim of being first in an uncertain competition for a patentable cost-reducing innovation. The incentives to innovate are market profits and not exogenously given prizes as in most of the earlier literature. Thus, incentives depend on the number of firms. We show that increasing rivalry may increase or decrease the individual R&D espenditure, there may be underinvestment with the various effect to the socially optimal level. Moreover, we identify the various effects which are responsible for the difference between our results and some conclusions of closely related contributions.

Suggested Citation

  • F. Delbono & V. Denicolo, 1988. "Incentives to Innovate in a Cournot Oligopoly," Working Papers 44, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:44
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    Cited by:

    1. Donja Darai & Dario Sacco & Armin Schmutzler, 2010. "Competition and innovation: an experimental investigation," Experimental Economics, Springer;Economic Science Association, vol. 13(4), pages 439-460, December.
    2. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, pages 653-687.
    3. Graziano, Clara & Parigi, Bruno M., 1998. "Do managers work harder in competitive industries?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 489-498, March.
    4. Raymond De Bondt & Jan Vandekerckhove, 2012. "Reflections on the Relation Between Competition and Innovation," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 7-19, March.
    5. Yao, Shuntian & Gan, Lydia, 2010. "Monopoly innovation and welfare effects," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-21.
    6. Jun Chen & Zhiqi Chen, 2011. "The quiet life of a monopolist: The efficiency losses of monopoly reconsidered," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(3), pages 389-412, September.
    7. 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.
    8. Neelanjan Sen, 2015. "Technology transfer and its effect on innovation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2523-2534.
    9. Baik, Kyung Hwan & Kim, In-Gyu, 1997. "Delegation in contests," European Journal of Political Economy, Elsevier, vol. 13(2), pages 281-298, May.
    10. Philipp Weinscheink, 2010. "Entry and Incumbent Innovation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_17, Max Planck Institute for Research on Collective Goods.
    11. Lin, Ping, 1998. "Product market competition and R&D rivalry," Economics Letters, Elsevier, vol. 58(1), pages 105-111, January.
    12. Kukuk Martin & Stadler Manfred, 2005. "Market Structure and Innovation Races / Marktstruktur und Innovationsrennen: An Empirical Assessment Using Indirect Inference / Eine empirische Untersuchung mit Hilfe der indirekten Schätzmethode," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 225(4), pages 427-440, August.
    13. De Bondt, Raymond, 1997. "Spillovers and innovative activities," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 1-28, February.
    14. Baik, Kyung Hwan, 1998. "Difference-form contest success functions and effort levels in contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 685-701, November.
    15. F. Delbono & L. Lambertini, 2017. "Innovation and product market concentration: Schumpeter, Arrow and the inverted-U shape curve," Working Papers wp2006, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. 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.
    17. Gianluca Femminis & Gianmaria Martini, 2010. "Spillovers, Disclosure Lags, and Incentives to Innovate: Do Oligopolies Over-Invest in R&D?," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, pages 47-76.
    18. Femminis Gianluca & Martini Gianmaria, 2010. "First-Mover Advantage in a Dynamic Duopoly with Spillover," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-46, November.
    19. Read, Colin, 1997. "Development Effort in Speculative Real Estate Competitions," Journal of Housing Economics, Elsevier, vol. 6(1), pages 1-15, March.
    20. Yi, Sang-Seung, 1999. "Market structure and incentives to innovate: the case of Cournot oligopoly," Economics Letters, Elsevier, vol. 65(3), pages 379-388, December.
    21. L. Lambertini & G. Rossini, 1998. "Endogenous choice of capacity and product innovation in a differential duopoly," Working Papers 320, Dipartimento Scienze Economiche, Universita' di Bologna.
    22. L. Lambertini & A. Mantovani, 2000. "Price vs Quantity in a Duopoly with Technological Spillovers: A Welfare Re-Appraisal," Working Papers 389, Dipartimento Scienze Economiche, Universita' di Bologna.
    23. Vivek Ghosal & Jiayao Ni, 2015. "Competition and Innovation in Automobile Markets," CESifo Working Paper Series 5504, CESifo Group Munich.
    24. Shuntian Yao & Lydia L. Gan, 2006. "The Welfare Effects of Monopoly Innovation," Economic Growth Centre Working Paper Series 0609, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    25. Yao, Shuntian & Gan, Lydia, 2010. "Monopoly innovation and welfare effects," Economics Discussion Papers 2010-10, Kiel Institute for the World Economy (IfW).

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