ON THE EFFECT OF IMPERFECT COLLUSION ON PROFITABILITY AND R&D

Marc Escrihuela-Villar () and Jorge Guillã‰n ()
Additional contact information
Jorge Guillã‰n: ��Escuela de Administración de Negocios para Graduados (ESAN). Alonso de Molina 1652, Monterrico, Surco. Lima, Perú
Authors registered in the RePEc Author Service: Jorge Guillén ()

The Singapore Economic Review (SER), 2021, vol. 66, issue 05, 1249-1259

Abstract: We consider a theoretical model where firms can reduce their initial unit costs by spending on R&D. We show that the degree of product market collusion (captured by the coefficient of cooperation) might reduce firms’ profits if innovation is made non-cooperatively. The intuition is that non-cooperative R&D introduces a negative externality where firms invest over and above the amount required to minimize costs so as to extract profits from their rival firm. Therefore, when product market competition drops below a certain level, a relatively large amount is spent on R&D with just a small output, making further collusion unprofitable. On the contrary, a Research Joint Venture (RJV) helps to internalize the externality and further product market collusion always increases firms’ profits. As a consequence, total welfare may be lower if R&D is made cooperatively.

Keywords: R&D; Imperfect collusion; research joint ventures (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590817500230
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:66:y:2021:i:05:n:s0217590817500230

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590817500230

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().