A Kantian Analysis of Pricing and R & D

Murat Donduran and Burak Ünveren ()
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Burak Ünveren: Yildiz Technical University

Review of Industrial Organization, 2021, vol. 58, issue 4, No 5, 583-605

Abstract: Abstract Can cooperation offer an innovative alternative to competition among firms? This design problem is analyzed in the context of Kantian cooperation among firms in a two-stage model. In the first stage, firms invest in R&D, which increases the probability of obtaining a superior technology. In the second stage, firms observe their technology, and choose their prices. The equilibrium R&D levels under competition, Kantian cooperation, and cartel cooperation are analyzed and compared. We show that without (with) perfect research spillovers, Kantian price cooperation supports weakly higher (lower) R&D than does cartel price cooperation. Moreover, the results are compared to the social optimum. Among the cases that we studied, only Kantian cooperative pricing with competitive R&D can induce an R&D investment that exceeds the socially optimal level, and all other R&D outcomes in our study unambiguously fall below the socially optimum level.

Keywords: R and D; Innovation; Cooperation; Kantian equilibrium (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11151-020-09801-y

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