The Impact of R&D Subsidies on the Introduction of New Products by Incumbent Firms
This Paper analyses the impact of R&D subsidies on incumbent firms to introduce new goods. We are especially interested in investigating various consequences of government subsidies for R&D, provided to firms that offer products of different qualities. This study examines the incentives of incumbent firms to introduce new products of various quality, their prices, as well as the product variety offered on the market. We find that the innovator always introduces a new product of higher quality and withdraws the existing product from the market. Providing an R&D subsidy to a high-quality firm results in a new product with higher quality than an R&D subsidy provided to a low-quality firm, at the expense of all consumers paying higher prices for all goods in the market. When the R&D subsidy is small, the low quality firm may not introduce a new product into the market, given that R&D costs for quality improvement are high and the degree of product differentiation is small.
|Date of creation:||Oct 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew Caplin & Barry Nalebuff, 1990.
"Aggregation and Imperfect Competition: On the Existence of Equilibrium,"
Cowles Foundation Discussion Papers
937, Cowles Foundation for Research in Economics, Yale University.
- Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
- Caplin, A. & Nalebuff, B., 1989. "Aggregation And Imperfect Competition: On The Existence Of Equilibrium," Discussion Papers 1989_30, Columbia University, Department of Economics.
- Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
- Aron, Debra J & Lazear, Edward P, 1990. "The Introduction of New Products," American Economic Review, American Economic Association, vol. 80(2), pages 421-26, May.
- Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, October.
- Shabtai Donnenfeld & Shlomo Weber, 1995.
"Limit Qualities and Entry Deterrence,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(1), pages 113-130, Spring.
- Champsaur, Paul & Rochet, Jean-Charles, 1989.
Econometric Society, vol. 57(3), pages 533-57, May.
- Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
- Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, 09.
- Steven Berry & Joel Waldfogel, 1996.
"Free Entry and Social Inefficiency in Radio Broadcasting,"
NBER Working Papers
5528, National Bureau of Economic Research, Inc.
- Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
- Pakes, Ariel & Berry, Steven & Levinsohn, James A, 1993. "Applications and Limitations of Some Recent Advances in Empirical Industrial Organization: Price Indexes and the Analysis of Environmental Change," American Economic Review, American Economic Association, vol. 83(2), pages 241-46, May.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
- Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4090. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.