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Entry deterrence through cooperative R&D over-investment

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  • Christin, Clémence

Abstract

In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price.

Suggested Citation

  • Christin, Clémence, 2011. "Entry deterrence through cooperative R&D over-investment," DICE Discussion Papers 38, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:38
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    Cited by:

    1. Éric Avenel & Clémence Christin, 2011. "Equilibrium strategic overbuying," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201205, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

    More about this item

    Keywords

    Competition policy; Research and Development Agreements; Collusion; Entry deterrence;

    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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