On the prisoner’s dilemma in R&D with input spillovers and incentives for R&D cooperation |
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Authors: | Chrystie Burr Malgorzata Knauff Anna Stepanova |
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Institution: | 1. Department of Economics, University of Colorado, Boulder, CO, United States;2. Warsaw School of Economics, Poland;3. Department of Economics, University of Kent, Canterbury, CT2 7NP, UK |
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Abstract: | This paper considers a standard model of strategic R&D with spillovers in R&D inputs, and extends the result that duopoly firms engaged in a standard two-stage game of R&D and Cournot competition end up in a prisoner’s dilemma situation for their R&D decisions, whenever spillover effects and R&D costs are relatively low. In terms of social welfare, this prisoner’s dilemma always works to the advantage of both consumers and society. This result allows a novel and enlightening perspective on some issues of substantial interest in the innovation literature. In particular, the incentive firms face towards R&D cooperation in the form of an R&D cartel is shown to be maximal for the case of zero spillovers, which is when the prisoner’s dilemma has the largest scope. |
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