R&amp;D rivalry with endogenous compatibility

Heywood, John S.; Wang, Zerong; Ye, Guangliang

doi:10.1111/manc.12399

Cited by 3 publications

(1 citation statement)

References 26 publications

(25 reference statements)

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“…On the other hand, both process innovation and product innovation improve the competitiveness of the firm [21,22], compressing the market size of other firms' products through the substitution effect [23,24], which may shift the level of competition in the market. In addition, innovations of potential entrants also may have a significant impact on the level of competition [25][26][27]. To address the possible endogeneity problem caused by reverse causal relationships, we identify the causal link between competition and quality of innovation through a natural experiment in China and use the difference-in-differences (DID) method to estimate the causal effect, following Nunn and Qian [28].…”

Section: Identification Strategymentioning

confidence: 99%

Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment

Yan

et al. 2022

Sustainability

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Innovations differ substantially in their qualities, from major breakthroughs to small incremental refinements. What is the relationship between product market competition and the quality of innovations? We develop a model where competition encourages high-quality firms to innovate but discourages low-quality firms from innovating and examine the impact of competition on the quality of innovations, taking the implementation of the negative list system for market access in China as a natural experiment. It is found that competition has twofold impacts on the incentives of innovation and that competition improves the overall innovation quality through the improvement of innovation resource allocation. More competition implies a higher elasticity of substitution, leading to stronger incentives for innovation. Meanwhile, competition also decreases industry profits and increases the cost of innovation, which reduces the expected return on innovation, resulting in fewer incentives for innovation. The findings suggest that while R&D subsidies increase aggregate R&D investment, they encourage the survival and expansion of low-quality firms at the expense of high-quality firms and lead to misallocation of R&D resources, resulting in the decline of overall innovation qualities.

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Section: Identification Strategymentioning

confidence: 99%

Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment

Yan

et al. 2022

Sustainability

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Network externalities, product compatibility and process innovation

Buccella

Fanti

Gori

2022

Economics of Innovation and New Technology

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The R&D Investment Decision Game with Product Differentiation

Buccella

Fanti

Gori

2022

The B.E. Journal of Theoretical Economics

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This article extends the cost-reducing R&D model with spillovers by d’Aspremont and Jacquemin (1988. “Cooperative and Noncooperative R&D in Duopoly with Spillovers.” The American Economic Review 78: 1133–7, 1990. “Cooperative and Noncooperative R&D in Duopoly with Spillovers: Erratum.” The American Economic Review 80: 641–2) to allow quantity-setting firms (Cournot rivalry) to play the non-cooperative R&D investment decision game with horizontal product differentiation. Unlike Bacchiega, Lambertini, and Mantovani (2010. “R&D-hindering Collusion.” The B.E. Journal of Economic Analysis & Policy 10 (Topics): 66), who identify a parametric region (defined by the extent of technological spillovers and the efficiency of R&D activity), in which the game is a prisoner’s dilemma (self-interest and mutual benefit of cost-reducing innovation conflict), this work shows that product differentiation changes the game into a deadlock (self-interest and mutual benefit do not conflict), regardless of the parameter scale (i.e. also in the absence of spill-over effects). Then investing in R&D challenges the improvement of interventions aimed at favouring product differentiation. This is because social welfare when firms invest in cost-reducing R&D is greater than when firms do not invest in R&D. Alternatively, R&D subsidies can be used as a social welfare maximising tool also in the absence of R&D spillovers. These results also hold for price-setting firms (Bertrand rivalry).

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R&D rivalry with endogenous compatibility

Cited by 3 publications

References 26 publications

Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment

Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment

Network externalities, product compatibility and process innovation

The R&D Investment Decision Game with Product Differentiation

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