The amount of cost-reduction or effective R&D that results in a symmetric sequential Nash equilibrium with quadratic payoffs and differentiated goods, is shown to increase with spillovers in "small group" industries and to achieve a maximum for spillovers that are not perfect in "large group" industries. Similar tendencies apply for consumer surplus, profits and static welfare. More rivals typically lead to reduced investments, output and profitability, while consumer surplus and welfare increase, or at least do not decrease. Limited entry in small groups may enhance innovative investments, profitability and consumer surplus, if only product differentiation, R&D efficiency and spillovers are sufficiently high. Too many rivals will then again lead to reductions and a decrease in static welfare. JEL Classification: 022, 611, 621.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.