Economic Theory

, Volume 2, Issue 4, pp 525–545 | Cite as

Stochastic innovation and product market organization

  • Stanley S. Reynolds
  • R. Mark Isaac
Research Articles
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Summary

This paper analyzes how different types of product market organization affect firms' R&D investments in a stochastic innovation framework. Product market competition determines payoffs to successful and unsuccessful firms. Restrictions on the research project success probability distribution are identified that yield an invariance result for expenditure per R&D project. The impact of the number of firms (n) on the amount of market R&D is shown to be sensitive to product market organization. For a major process innovation, firms undertake more R&D projects under Cournot product market competition than under Bertrand competition, forn sufficiently large. A numerical example is used to illustrate welfare tradeoffs.

Keywords

Probability Distribution Economic Theory Process Innovation Product Market Success Probability 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Copyright information

© Springer-Verlag 1992

Authors and Affiliations

  • Stanley S. Reynolds
    • 1
  • R. Mark Isaac
    • 1
  1. 1.Department of EconomicsUniversity of ArizonaTucsonUSA

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