Wednesday, June 21, 2017

R&D Cooperatives and Market Collusion: A Global Dynamic Approach

Jeroen Hinloopen (CPB Netherlands Bureau for Economic Policy Analysis and University of Amsterdam, The Netherlands) ; Grega Smrkolj (Newcastle University, Geat-Britain); and Florian Wagener (University of Amsterdam, The Netherlands) analyze R&D Cooperatives and Market Collusion: A Global Dynamic Approach.

ABSTRACT: We present a continuous-time generalization of the seminal R&D model of d'Aspremont and Jacquemin (The American Economic Review 78(5): 1133–1137, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion. We consider all trajectories that are candidates for an optimal solution as well as initial marginal cost levels that exceed the choke price. Firms that collude develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.

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