Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, February 7, 2012

Entry deterrence through cooperative R&D over-investment

Posted by D. Daniel Sokol

Clemence Christin, Dusseldorf Institute for Competition Economics explores Entry deterrence through cooperative R&D over-investment.

ABSTRACT: In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/02/entry-deterrence-through-cooperative-rd-over-investment.html

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