The
purpose of this paper is to extend a theoretical framework for
analyzing competition and innovation in the presence of horizontal
spillovers.
Design/methodology/approach:
A theoretical analysis approach is adopted to drive the paper’s findings.
Findings:
It
is shown that when firms behave non-cooperatively in both the R&D
and production stages, the degree of spillover has a negative
relationship with the effective and respective R&D expenditures of
each firm as well as the level of social welfare. An inverted-U
relationship between competition and social welfare also holds. When
firms behave cooperatively in the R&D stage, and non-cooperatively
in the production stage the relationship between the R&D expenditure
of the joint research lab and the number of firms in the market is
negative.
Originality/value:
In
the literature on R&D spillovers and process innovation, efforts
are mostly focused on the comparative R&D expenditures and the
relative social welfare between non-cooperative and cooperative R&D.
The question of the effectiveness of R&D technology on the optimal
number of firm, however, is not explicitly addressed. The paper is
intended to address this lacuna.
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