R&D competition versus R&D cooperation in oligopolistic markets with evolving structure

H. Dawid, Michael Kopel and Peter Kort

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 527-537

Abstract: This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to implement a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.

Keywords: R&D; Competition; Cooperation; Product innovation; Capital accumulation; Differential game (search for similar items in EconPapers)
JEL-codes: C73 L13 O33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:527-537

DOI: 10.1016/j.ijindorg.2013.09.003

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