The Invariance of R&D to the Number of Firms in the Industry

23 Pages Posted: 16 Jul 2004

See all articles by Raaj Kumar Sah

Raaj Kumar Sah

University of Chicago

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

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.

Suggested Citation

Sah, Raaj Kumar and Stiglitz, Joseph E., The Invariance of R&D to the Number of Firms in the Industry (1986). NBER Working Paper No. w1798. Available at SSRN: https://ssrn.com/abstract=338839

Raaj Kumar Sah

University of Chicago ( email )

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Joseph E. Stiglitz (Contact Author)

Columbia Business School - Finance and Economics ( email )

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