18 Pages Posted: 21 Nov 2008
Date Written: November 19, 2008
In an extended version of d'Aspremont and Jacquemin's (1988) R&D competition model we find a region where the game is a prisoner's dilemma: firms still invest in R&D but they would obtain a higher profit by not investing at all. In a repeated version of the game, we prove that firms implicitly tend to collude and refrain from investing in R&D, thus decreasing social welfare. When this happens, inviting firms to form a joint venture appears as a remedy to the lack of innovation efforts rather than the excess thereof.
Keywords: collusion, process innovation, social welfare
JEL Classification: D43, L13, O31
Suggested Citation: Suggested Citation