Journal article
R&D-induced industry polarization and shake-outs
International journal of industrial organization, Vol.29(4), pp.386-398
07/01/2011
DOI: 10.1016/j.ijindorg.2010.07.007
Abstract
We consider the standard two-stage game of R&D and Cournot competition with ex ante identical firms but depart from the literature in assuming that R&D is characterized by mildly, instead of strongly, decreasing returns to scale. We establish that only extreme R&D levels are possible at equilibrium, and that for a broad range of parameters, equilibria are asymmetric in R&D levels, possibly leading one firm to endogenously exit. This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. Given the original nature of our R&D equilibrium, a complete welfare analysis is conducted, including a possible role for R&D subsidies.
►The standard symmetric two-stage game of R&D and Cournot competition with R&D characterized by mildly (instead of strongly) decreasing returns to scale has only extreme equilibrium R&D for some parameter values. ►These asymmetric equilibria lead to polar duopoly or possibly to monopoly, with one firm endogenously exiting. ►This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. ►Second-best welfare solution may reflect too little or too much R&D, depending on parameters.
Details
- Title: Subtitle
- R&D-induced industry polarization and shake-outs
- Creators
- Rabah Amir - University of ArizonaChristine Halmenschlager - Université Paris-Panthéon-AssasJim Jin - University of St Andrews
- Resource Type
- Journal article
- Publication Details
- International journal of industrial organization, Vol.29(4), pp.386-398
- Publisher
- Elsevier B.V
- DOI
- 10.1016/j.ijindorg.2010.07.007
- ISSN
- 0167-7187
- eISSN
- 1873-7986
- Language
- English
- Date published
- 07/01/2011
- Academic Unit
- Economics
- Record Identifier
- 9984380515102771
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