IDEAS home Printed from https://ideas.repec.org/p/erm/papers/0802.html
   My bibliography  Save this paper

R&D-Induced Industry Polarization and Shakeouts

Author

Listed:
  • AMIR R.
  • HALMENSCHLAGER C.

Abstract

We consider the standard two-stage game of R&D and Cournot competition with ex ante identical firms but depart from the literature in assuming that R&D is characterized by mildly, instead of strongly, decreasing returns to scale. We establish that only extreme R&D levels are possible at equilibrium, and that for a broad range of parameters, equilibria are asymmetric in R&D levels, possibly leading one firm to endogenously exit. This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. Given the original nature of our R&D equilibrium, a complete welfare analysis is conducted, including a possible role for R&D subsidies.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Amir R. & Halmenschlager C., 2008. "R&D-Induced Industry Polarization and Shakeouts," Working Papers ERMES 0802, ERMES, University Paris 2.
  • Handle: RePEc:erm:papers:0802
    as

    Download full text from publisher

    File URL: http://ermes.u-paris2.fr/doctrav/0802
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Besanko & Ulrich Doraszelski, 2004. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 23-49, Spring.
    2. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, vol. 92(1), pages 122-141, May.
    3. Ulrich Doraszelski & Mark Satterthwaite, 2010. "Computable Markov-perfect industry dynamics," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 215-243.
    4. Klepper, Steven & Simons, Kenneth L., 2005. "Industry shakeouts and technological change," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 23-43, February.
    5. Reynolds, Stanley S, 1988. "Plant Closings and Exit Behaviour in Declining Industries," Economica, London School of Economics and Political Science, vol. 55(220), pages 493-503, November.
    6. Eugenio J. Miravete & José C. Pernías, 2006. "INNOVATION COMPLEMENTARITY AND SCALE OF PRODUCTION -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 1-29, March.
    7. W. Salant, Stephen & Shaffer, Greg, 1998. "Optimal asymmetric strategies in research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 195-208, March.
    8. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
    9. Amir, Rabah & Lambson, Val E., 2003. "Entry, exit, and imperfect competition in the long run," Journal of Economic Theory, Elsevier, vol. 110(1), pages 191-203, May.
    10. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    11. Val Eugene Lambson, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 125-142.
    12. Jim Jin & Juan Perote-Peña & Michael Troege, 2004. "Learning by doing, spillovers and shakeouts," Journal of Evolutionary Economics, Springer, vol. 14(1), pages 85-98, January.
    13. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2013. "Entry, exit, and the determinants of market structure," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 462-487, September.
    14. Amir, Rabah & Wooders, John, 2000. "One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures," Games and Economic Behavior, Elsevier, vol. 31(1), pages 1-25, April.
    15. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    16. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
    17. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
    18. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
    19. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    20. Mills, David E. & Smith, William, 1996. "It pays to be different: Endogenous heterogeneity of firms in an oligopoly," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 317-329, May.
    21. Hoppe, Heidrun C, 2002. "The Timing of New Technology Adoption: Theoretical Models and Empirical Evidence," Manchester School, University of Manchester, vol. 70(1), pages 56-76, January.
    22. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
    23. Amir, Rabah & Evstigneev, Igor & Wooders, John, 2003. "Noncooperative versus cooperative R&D with endogenous spillover rates," Games and Economic Behavior, Elsevier, vol. 42(2), pages 183-207, February.
    24. Drew Fudenberg & Jean Tirole, 1983. "Learning-by-Doing and Market Performance," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 522-530, Autumn.
    25. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    26. Federico Echenique & Aaron Edlin, 2001. "Mixed Equilibria in Games of Strategic Complements are Unstable," Levine's Working Paper Archive 563824000000000161, David K. Levine.
    27. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
    28. Bernstein, Jeffrey I & Nadiri, M Ishaq, 1988. "Interindustry R&D Spillovers, Rates of Return, and Production in High-Tech Industries," American Economic Review, American Economic Association, vol. 78(2), pages 429-434, May.
    29. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August.
    30. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
    31. Klepper, Steven & Miller, John H., 1995. "Entry, exit, and shakeouts in the United States in new manufactured products," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 567-591, December.
    32. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    33. Flaherty, M Therese, 1980. "Industry Structure and Cost-Reducing Investment," Econometrica, Econometric Society, vol. 48(5), pages 1187-1209, July.
    34. Pankaj Ghemawat & Barry Nalebuff, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 167-186.
    35. Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
    36. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, January.
    37. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
    38. Elberfeld, Walter, 2003. "A note on technology choice, firm heterogeneity and welfare," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 593-605, April.
    39. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    40. Agarwal, Rajshree, 1998. "Evolutionary trends of industry variables," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 511-525, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco A. Marini & Maria L. Petit & Roberta Sestini, 2014. "Strategic timing in R&D agreements," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(3), pages 274-303, April.
    2. repec:eee:jetheo:v:169:y:2017:i:c:p:641-665 is not listed on IDEAS
    3. Amir, Rabah & Erickson, Philip & Jin, Jim, 2017. "On the microeconomic foundations of linear demand for differentiated products," Journal of Economic Theory, Elsevier, vol. 169(C), pages 641-665.
    4. Burr, Chrystie & Knauff, Malgorzata & Stepanova, Anna, 2013. "On the prisoner’s dilemma in R&D with input spillovers and incentives for R&D cooperation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 254-261.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erm:papers:0802. 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: (). General contact details of provider: http://edirc.repec.org/data/ermp2fr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.