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R&D Competition Versus R&D Cooperation in Oligopolistic Markets with Evolving Structure

24 Pages Posted: 9 Mar 2013  

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Peter M. Kort

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER)

Michael Kopel

University of Graz

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2013

Abstract

This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to realize a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.

Suggested Citation

Dawid, Herbert and Kort, Peter M. and Kopel, Michael, R&D Competition Versus R&D Cooperation in Oligopolistic Markets with Evolving Structure (February 1, 2013). Bielefeld Working Papers in Economics and Management No. 06-2013. Available at SSRN: https://ssrn.com/abstract=2229817 or http://dx.doi.org/10.2139/ssrn.2229817

Herbert Dawid (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Peter Kort

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

HOME PAGE: http://center.uvt.nl/staff/kort/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

Michael Kopel

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

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