Entry Deterrence Through Cooperative R&D Over-Investment

Clémence Christin ()

No 2013021, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We highlight conditions under which R&D agreements may harm consumers by increasing final prices. This occurs despite the fact that members of the R&D agreement increase their R&D efforts. We focus on cases where firms compete both in the final market and in buying an input necessary for R&D. The market is composed of a competitive fringe and two strategic firms that enjoy first mover advantage in both markets. By increasing its R&D input purchase, a strategic firm increases the cost to all of its rivals and in particular deters entry at the fringe. This reduces downstream competition and increases the final price. Therefore, an R&D agreement may induce strategic overbuying of R&D inputs by members of the agreement at the expense of rival firms and consumers.

Keywords: Research and Development agreements; Collusion; Entry deterrence (search for similar items in EconPapers)
JEL-codes: L13 L24 L41 (search for similar items in EconPapers)
Pages: 21
Date: 2013-06-01
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Related works:
Journal Article: Entry Deterrence Through Cooperative R&D Over-Investment (2013)
Working Paper: Entry deterrence through cooperative R&D over-investment (2013)
Working Paper: Entry deterrence through cooperative R&D over-investment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2013021

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