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Entry Deterrence Through Cooperative R&D Over-Investment

Author

Listed:
  • Clémence CHRISTIN

    (Düsseldorf Institute for Competition Economics)

Abstract

We highlight conditions under which R&D agreements may harm consumers by increasing final prices. This occurs despite the fact that members of the R&D agreement increase their R&D efforts. We focus on cases where firms compete both in the final market and in buying an input necessary for R&D. The market is composed of a competitive fringe and two strategic firms that enjoy first mover advantage in both markets. By increasing its R&D input purchase, a strategic firm increases the cost to all of its rivals and in particular deters entry at the fringe. This reduces downstream competition and increases the final price. Therefore, an R&D agreement may induce strategic overbuying of R&D inputs by members of the agreement at the expense of rival firms and consumers.

Suggested Citation

  • Clémence CHRISTIN, 2013. "Entry Deterrence Through Cooperative R&D Over-Investment," Discussion Papers (REL - Recherches Economiques de Louvain) 2013021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:2013021
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    Cited by:

    1. is not listed on IDEAS
    2. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, vol. 115(1), pages 7-10.
    3. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-23, June.
    4. Éric Avenel & Clémence Christin, 2011. "Equilibrium strategic overbuying," Economics Working Paper Archive (University of Rennes & University of Caen) 201205, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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