R&D-induced industry polarization and shake-outs
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.
Year of publication: |
2011
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Authors: | Amir, Rabah ; Halmenschlager, Christine ; Jin, Jim |
Published in: |
International Journal of Industrial Organization. - Elsevier, ISSN 0167-7187. - Vol. 29.2011, 4, p. 386-398
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Publisher: |
Elsevier |
Keywords: | R&D and industry dynamics Returns to scale in R&D Endogenous heterogeneity Exit |
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