The Invariance of R&D to the Number of Firms in the Industry
23 Pages Posted: 16 Jul 2004 Last revised: 2 Dec 2022
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The Invariance of R&D to the Number of Firms in the Industry
The Invariance of R&D to the Number of Firms in the Industry: Equilibrium and Efficiency under Bertrand Competition
Date Written: 1986
Abstract
Thi spaper presents certain remarkably simple results concerning market's allocation to R&D and its comparison to socially efficient allocations. We posit that a firm can undertake more than one project aimed at the same innovation, and consider a product market characterized by Bertrand competition. Among the results we obtain is that the market R&D (that is, the number of projects undertaken, and the effort spent on different projects) is invariant to the number of firms. We also examine the effects of the number of firms on the gains from innovation to consumers, firms, and society, and show, in particular, that the market undertakes less R&D than is socially desirable.
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