School of Economics

2009 Discussion Papers

School of Economics Discussion Paper 09/01
January 2009

R&D Spillovers, Concentration and Market Performance

Anna Stepanova

School of Economics
University of Kent

Abstract:

In a two-stage R&D game of process innovation, we investigate the effect of exogenously changing R&D spillovers and market concentration on the equilibrium level of effective cost reduction, total output, profits and social welfare. Interpreting spillover as a measure of patent protection, we find that weaker patent protection results in less R&D. We also show that firms prefer weaker patent protection, but social welfare is maximized for higher levels of patent protection. In terms of market concentration we show that firm profits decrease with increasing numbers of firms. Social welfare is typically maximized under oligopoly with the optimal number of firms depending on the level of spillover and efficiency of R&D investment.

JEL Classification: C72, L13, O31

Keywords:oligopoly, R&D, competition, spillover process, cost reduction, market concentration

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