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R&D-induced industry polarization and shake-outs

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  • Amir, Rabah
  • Halmenschlager, Christine
  • Jin, Jim
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.

Suggested Citation

  • Amir, Rabah & Halmenschlager, Christine & Jin, Jim, 2011. "R&D-induced industry polarization and shake-outs," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 386-398, July.
    • Handle: RePEc:eee:indorg:v:29:y:2011:i:4:p:386-398
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    3. Rabah Amir & Evangelia Chalioti & Christine Halmenschlager, 2021. "University–firm competition in basic research: Simultaneous versus sequential moves," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(6), pages 1199-1219, December.
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    5. Jan Zouhar & Martina Zouharova, 2020. "Stackelberg versus Cournot duopoly with asymmetric costs: primary markups, entry deterrence, and a comparison of social welfare and industry profits," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 89-96, April.
    6. Chen Cao & Xueyun Chen, 2021. "Can Industrial Integration Improve the Sustainability of Grain Security?," Sustainability, MDPI, vol. 13(24), pages 1-17, December.
    7. Karbowski, Adam, 2019. "Greed and fear in downstream R&D games," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 32, pages 63-76.
    8. Burr, Chrystie & Knauff, Malgorzata & Stepanova, Anna, 2013. "On the prisoner’s dilemma in R&D with input spillovers and incentives for R&D cooperation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 254-261.
    9. Yichi Lai & Hao Yang & Feng Qiu & Zixin Dang & Yihan Luo, 2023. "Can Rural Industrial Integration Alleviate Agricultural Non-Point Source Pollution? Evidence from Rural China," Agriculture, MDPI, vol. 13(7), pages 1-18, July.

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