Market Structure, Organizational Structure, and R&D Diversity
We examine the effects of market structure and the internal organization of firms on equilibrium R&D projects. We compare a monopolistâ€™s choice of R&D portfolio to that of a welfare maximizer. We next show that Sah and Stiglitzâ€™s finding that the market portfolio of R&D is independent of the number of firms under Bertrand competition extends to neither Cournot oligopoly nor a cartel. We also show that the ability of firms to pre-empt R&D by rivals along particular research paths can lead to socially excessive R&D diversification. Lastly, using Sah and Stiglitzâ€™s definition of hierarchy, we establish conditions under which larger hierarchies invest in smaller portfolios.
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