R&D-induced industry polarization and shake-outs

Rabah Amir (), Christine Halmenschlager and Jim Jin ()

International Journal of Industrial Organization, 2011, vol. 29, issue 4, 386-398

Abstract: We consider the standard two-stage game of R&D and Cournot competition with ex ante identical firms but depart from the literature in assuming that R&D is characterized by mildly, instead of strongly, decreasing returns to scale. We establish that only extreme R&D levels are possible at equilibrium, and that for a broad range of parameters, equilibria are asymmetric in R&D levels, possibly leading one firm to endogenously exit. This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. Given the original nature of our R&D equilibrium, a complete welfare analysis is conducted, including a possible role for R&D subsidies.

Keywords: R&D; and; industry; dynamics; Returns; to; scale; in; R&D; Endogenous; heterogeneity; Exit (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Working Paper: R&D-Induced Industry Polarization and Shakeouts (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:4:p:386-398

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