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Strategic Commitment with R&D: The Symmetric Case


  • Barbara J. Spencer
  • James A. Brander


When R&D takes place before the associated output is produced, imperfectly competitive firms may use R&D for strategic purposes rather than to simply minimize costs. Using a symmetric two-stage Nash duopoly model we show that such strategic use of R&D increases total R&D undertaken, increases total output, and lowers industry profits. This introduces inefficiency in that total costs are not minimized. Nevertheless, net welfare may rise if products are homogeneous, marginal costs are non-decreasing and demand is convex or linear.

Suggested Citation

  • Barbara J. Spencer & James A. Brander, 1982. "Strategic Commitment with R&D: The Symmetric Case," Working Paper 516, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:516

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