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The Invariance of R&D to the Number of Firms in the Industry

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  • Raaj Kumar Sah
  • Joseph E. Stiglitz

Abstract

Thi spaper presents certain remarkably simple results concerning market's allocation to R&D and its comparison to socially efficient allocations. We posit that a firm can undertake more than one project aimed at the same innovation, and consider a product market characterized by Bertrand competition. Among the results we obtain is that the market R&D (that is, the number of projects undertaken, and the effort spent on different projects) is invariant to the number of firms. We also examine the effects of the number of firms on the gains from innovation to consumers, firms, and society, and show, in particular, that the market undertakes less R&D than is socially desirable.

Suggested Citation

  • Raaj Kumar Sah & Joseph E. Stiglitz, 1986. "The Invariance of R&D to the Number of Firms in the Industry," NBER Working Papers 1798, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1798
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    1. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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    Cited by:

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    2. Svetlana Panikarova & Maxim Vlasov, 2016. "Knowledge Generation Strategies: Empirical Analysis of Industrial Enterprises," Journal of Information & Knowledge Management (JIKM), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-11, June.
    3. Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
    4. Igor Letina, 2016. "The road not taken: competition and the R&D portfolio," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 433-460, May.
    5. Wittwer, Milena, 2017. "Centralizing Disconnected Markets? An Irrelevance Result," MPRA Paper 76534, University Library of Munich, Germany.
    6. Bhattacharya, Sudipto & Glazer, Jacob & Sappington, David E. M., 1992. "Licensing and the sharing of knowledge in research joint ventures," Journal of Economic Theory, Elsevier, vol. 56(1), pages 43-69, February.
    7. Kevin J. Boudreau, 2012. "Let a Thousand Flowers Bloom? An Early Look at Large Numbers of Software App Developers and Patterns of Innovation," Organization Science, INFORMS, vol. 23(5), pages 1409-1427, October.
    8. Richard J. Gilbert, 2019. "Competition, Mergers, and R&D Diversity," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 465-484, May.
    9. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 159-215, National Bureau of Economic Research, Inc.
    10. Gambardella, Alfonso, 2013. "The economic value of patented inventions: Thoughts and some open questions," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 626-633.

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