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Cooperation vs. competition in R&D: The role of stability of equilibrium

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We consider a model in which firms first choose process R&D expenditures and then compete in an output market. We show the symmetric equilibrium under R&D competition is sometimes unstable, in which case two asymmetric equilibria must also exist. For the latter, we find, in contrast to the literature that total profits are sometimes higher with R&D competition than with research joint venture cartelization (due to the cost asymmetry of the resulting duopoly in the noncooperative case). Furthermore, these equilibria provide another instance of R&D-induced firm heterogeneity.

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Amir, R., Wooders, J. Cooperation vs. competition in R&D: The role of stability of equilibrium. Zeitschr. f. Nationalökonomie 67, 63–73 (1998).

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