MCDM'11 - paper no. 6


 

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R&D RIVALRY AND COOPERATION IN DUOPOLY: FIRM ORGANIZATION, WELFARE AND POLICY IMPLICATIONS

Hanna Joseph

Abstract:

The objective of the paper is to reveal the optimal organization of industry when firms, facing externalities, compete or cooperate in R&D as well as in the final output market. The model hinges on a two-stage game setting. A ranking of solutions is established for alternative organizations. We focus on welfare issues and allow for public intervention. Subsidizing R&D is used to draw the industry to match the social welfare solution. The paper shows that targeting the optimal level of R&D leaves final output fall short of the welfare solution. Whereas targeting the final output leads to overinvestment in R&D. The ranking of policies reveals that the most efficient industry organization occurs when firms cooperate and fully share R&D results but remain competitive in the final good market.

Keywords:

R&D, Subsidies, welfare, spillover, two stage-game, Cournot equilibrium.

Reference index:

Hanna Joseph, (2011), R&D RIVALRY AND COOPERATION IN DUOPOLY: FIRM ORGANIZATION, WELFARE AND POLICY IMPLICATIONS, Multiple Criteria Decision Making (6), pp. 104-132

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