Friday, July 2, 2010
Posted by D. Daniel Sokol
Junichiro Ishida (Institute of Social and Economic Research, Osaka University), Toshihiro Matsumura (Institute of Social Science, University of Tokyo), and Noriaki Matsushima (Institute of Social and Economic Research, Osaka University) explain Market Competition, R&D and Firm Profits in Asymmetric Oligopoly.
ABSTRACT: We investigate a Cournot model with strategic R&D investments wherein efficient low-cost firms compete against less efficient high-cost firms. We find that an increase in the number of high-cost firms can stimulate R&D by the low-cost firms, while it always reduces R&D by the high-cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low-cost firms' profits may indeed increase with the number of high-cost firms. An implication of this result is far-reaching, as it gives low-cost firms an incentive to help, rather than harm, high-cost competitors. We relate this implication to a practice known as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.