Entry deterrence through cooperative R&D over-investment

Accords de recherche et développement, sur-investissement et barrières à l'entrée

Clémence Christin ()

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

Keywords: collusion; entry deterrence; Research and development agreements; Accords de recherche et développement; barrières à l’entrée (search for similar items in EconPapers)
Date: 2013
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Published in Recherches Economiques de Louvain - Louvain economic review, 2013, 79 (2), pp.5-25. ⟨10.3917/rel.792.0005⟩

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Journal Article: Entry Deterrence Through Cooperative R&D Over-Investment (2013)
Working Paper: Entry Deterrence Through Cooperative R&D Over-Investment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01103565

DOI: 10.3917/rel.792.0005

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