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Incentives for Process Innovation in a Collusive Duopoly

Author

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  • Christoph Engel

    () (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

Two suppliers of a homogenous good know that, in the second period, they will be able to collude. Gains from collusion are split according to the Nash bargaining solution. In the first period, either of them is able to invest into process innovation. Innovation changes the status quo pay-off, and thereby affects the distribution of the gains from collusion. The resulting innovation incentive is strictly smaller than in the competitive case.

Suggested Citation

  • Christoph Engel, 2007. "Incentives for Process Innovation in a Collusive Duopoly," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2007_6, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2007_6
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    File URL: http://www.coll.mpg.de/pdf_dat/2007_06online.pdf
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    Keywords

    Duopoly; Collusion; Innovation Incentives;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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