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R&D incentives and spillovers in a two-industry model

Listed author(s):
  • Harhoff, Dietmar

This paper develops a two-industry model of R&D. A monopolist supplier sells an intermediate good to an oligopolistic buyer industry where firms compete in quantity and quality-enhancing R&D. The supplier can contribute to downstream product improvements by creating spillover knowledge which downstream firms use as a substitute for their own R&D efforts. Even if a market for R&D information fails to exist, the supplier may appropriate an indirect return on R&D for two reasons. Sufficiently high levels of spillover information lead to greater downstream product quality, and spillover information reduces the sunk cost of R&D necessary to enter the downstream industry. Both effects cause an expansion of downstream output and enhance the demand for the supplier's intermediate good. Given sufficiently strong incentives for supplier R&D, the locus of R&D shifts partially from the downstream to the upstream industry. R&D intensities, technological opportunities, and the industry structure of the downstream industry are determined endogenously. The R&D behavior of supplier and buyer firms is characterized by switching equilibria, thereby providing support for the notion of distinct technological regimes.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 91-06.

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Date of creation: 1991
Handle: RePEc:zbw:zewdip:9106
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  5. Jeffrey I. Bernstein, 1988. "Costs of Production, Intra- and Interindustry R&D Spillovers: Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 324-347, May.
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  13. Von Hippel, Eric, 1982. "Appropriability of innovation benefit as a predictor of the source of innovation," Research Policy, Elsevier, vol. 11(2), pages 95-115, April.
  14. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
  15. 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.
  16. Tandon, Pankaj, 1984. "Innovation, Market Structure, and Welfare," American Economic Review, American Economic Association, vol. 74(3), pages 394-403, June.
  17. Nelson, Richard R, 1980. "Production Sets, Technological Knowledge, and R & D: Fragile and Overworked Constructs for Analysis of Productivity Growth?," American Economic Review, American Economic Association, vol. 70(2), pages 62-67, May.
  18. Bradburd, Ralph M, 1982. "Price-Cost Margins in Producer Goods Industries and "The Importance of Being Unimportant."," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 405-412, August.
  19. Ryuzo Sato & Tetsunori Koizumi, 1970. "Substitutability, Complementarity and the Theory of Derived Demand," Review of Economic Studies, Oxford University Press, vol. 37(1), pages 107-118.
  20. Universities-National Bureau Committee for Economic Research & Committee on Economic Growth of the Social Science Research Council, 1962. "The Rate and Direction of Inventive Activity: Economic and Social Factors," NBER Books, National Bureau of Economic Research, Inc, number univ62-1, November.
  21. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
  22. Caves, Richard E & Crookell, Harold & Killing, J Peter, 1983. "The Imperfect Market for Technology Licenses," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 45(3), pages 249-267, August.
  23. Pankaj Tandon, 1983. "Rivalry and the Excessive Allocation of Resources to Research," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 152-165, Spring.
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