Market Structure, Organizational Structure, and R&D Diversity

UC Berkeley Competition Policy Center Working Paper No. CPC02-34

34 Pages Posted: 9 Feb 2004

See all articles by Joseph Farrell

Joseph Farrell

University of California, Berkeley - Department of Economics

Richard Gilbert

University of California, Berkeley - Department of Economics

Michael L. Katz

University of California, Berkeley - Economic Analysis & Policy Group

Date Written: September 26, 2002

Abstract

We examine the effects of market structure and the internal organization of firms on equilibrium R&D projects. We compare a monopolist's choice of R&D portfolio to that of a welfare maximizer. We next show that Sah and Stiglitz's finding that the market portfolio of R&D is independent of the number of firms under Bertrand competition extends to neither Cournot oligopoly nor a cartel. We also show that the ability of firms to pre-empt R&D by rivals along particular research paths can lead to socially excessive R&D diversification. Lastly, using Sah and Stiglitz's definition of hierarchy, we establish conditions under which larger hierarchies invest in smaller portfolios.

Keywords: Internal organization, market power, research and development

JEL Classification: L1, L12, O31

Suggested Citation

Farrell, Joseph and Gilbert, Richard J. and Katz, Michael Louis, Market Structure, Organizational Structure, and R&D Diversity (September 26, 2002). UC Berkeley Competition Policy Center Working Paper No. CPC02-34, Available at SSRN: https://ssrn.com/abstract=497303 or http://dx.doi.org/10.2139/ssrn.497303

Joseph Farrell (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

Richard J. Gilbert

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Michael Louis Katz

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

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