R&D-hindering Collusion

Posted by D. Daniel Sokol

Emanuele Bacchiega, Luca Lambertini and Andrea Mantovani (all University of Bologna - Economics) write on R&D-hindering Collusion.

ABSTRACT: In an extended version of d'Aspremont and Jacquemin's (1988) R&D competition model we find a region where the game is a prisoner's dilemma: firms still invest in R&D but they would obtain a higher pro t by not investing at all. In a repeated version of the game, we prove that firms implicitly tend to collude and refrain from investing in R&D, thus decreasing social welfare. When this happens, inviting firms to form a joint venture appears as a remedy to the lack of innovation e fforts rather than the excess thereof.