 R&D investments with spillovers and endogenous horizontal differentiationStefano Colombo () and Luca Lambertini Regional Science and Urban Economics, 2023, vol. 98, issue C Abstract: We investigate the implications of cost-reducing R&D activities with spillovers in a Hotelling model with endogenous product differentiation driven by quadratic transportation costs. We consider two different three-stage games: in the first, firms choose locations, then R&D efforts and finally prices; in the second, R&D strategies are decided at the first stage and locations are chosen at the second, with price competition taking place at the third. We identify the conditions whereby process innovation brings about a reduction of product differentiation in equilibrium, consequently implying lower profits. Equilibrium product differentiation and profits are increasing in R&D spillovers. Then, transforming the structure into a twofold version of a four-stage game, we allow firms to commit not to invest in R&D, to show the presence of an underlying prisoners’ dilemma affecting R&D decisions. Finally, we illustrate R&D cartels’ ability to eliminate wasteful sunk costs, and outline policy prescriptions. Keywords: Horizontal differentiation; Process innovation; Endogenous locations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:98:y:2023:i:c:s0166046222000990 DOI: 10.1016/j.regsciurbeco.2022.103861 Access Statistics for this article Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou More articles in Regional Science and Urban Economics from Elsevier |
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