24 Pages Posted: 9 Mar 2013
Date Written: February 1, 2013
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: 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