Abstract
We assume that R&D investment by a firm improves the quality of the product. This is reflected in an upward shift of the demand function. Firms can do R&D either independently or cooperatively. We show that cooperative research strictly dominates non-cooperative research, both in terms of profitability and welfare. Also, R&D investment by each firm under cooperative research is larger for a relatively high R&D output elasticity. The higher the degree of product differentiation and/or larger the R&D output elasticity is, the larger the increase in quality level under cooperative research, compared to non-cooperative research, will be.
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Kabiraj, T., Roy, S. Demand Shift Effect of R&D and the R&D Organization. JEcon 83, 181–198 (2004). https://doi.org/10.1007/s00712-004-0067-9
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DOI: https://doi.org/10.1007/s00712-004-0067-9