Greed and Fear in Downstream R&D Games
The aim of this paper is to investigate the fi rms’ incentives to engage in process R&D under vertical industrial setting, when the raising rivals’ cost effect is present. We show that R&D investment of the downstream duopoly fi rm raises the rival’s marginal costs of production. The down...
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| Format: | Article |
| Language: | English |
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Kozminski University
2019-12-01
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| Series: | Decyzje |
| Subjects: | |
| Online Access: | https://journal.kozminski.edu.pl/index.php/decyzje/article/view/389 |
| Summary: | The aim of this paper is to investigate the fi rms’ incentives to engage
in process R&D under vertical industrial setting, when the raising rivals’ cost
effect is present. We show that R&D investment of the downstream duopoly fi rm
raises the rival’s marginal costs of production. The downstream R&D behavior
can give rise to the symmetric investment games, i.e., the prisoner’s dilemma,
the deadlock game and the harmony game, between downstream competitors.
If the costs of the R&D investments made by the downstream fi rms are large
enough, the downstream fi rms can participate in the harmony game, which
results in the investment hold-up or the creation of the R&D-avoiding cartel.
For more R&D-effi cient downstream fi rms, the downstream investment game
can end up in the prisoner’s dilemma or the deadlock game. In the prisoner’s
dilemma, both downstream fi rms invest in R&D, but such a behavior is not
Pareto optimal. In the prisoner’s dilemma, greed and fear make fi rms invest in
R&D. In the deadlock game, both downstream fi rms invest in R&D, and such
a behavior is Pareto optimal. The R&D investments are not induced by any
social tension (greed or fear). |
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| ISSN: | 1733-0092 2391-761X |