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INDUSTRY EQUILIBRIUM IN NEW PRODUCT RESEARCH AND DEVELOPMENT: A SIMPLE APPROACH
Author(s) -
LEFFLER KEITH
Publication year - 1981
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1981.tb00603.x
Subject(s) - economics , general equilibrium theory , product (mathematics) , simple (philosophy) , competition (biology) , industrial organization , new product development , microeconomics , variety (cybernetics) , partial equilibrium , parametric statistics , government (linguistics) , computer science , mathematics , ecology , philosophy , statistics , geometry , management , linguistics , epistemology , artificial intelligence , biology
In this paper the economic framework of competition in location and/or product variety is extended to include the uncertainty accompanying new product research and development. A simple approach describing the equilibrium industry structure is first presented. Then the effects on a research industry of parametric changes in research costs such as implied by government drug policies is considered. Contrary to the implications of standard supply and demand analysis, these parametric changes are found to affect the level of research, the extent of new product innovation, and research concentration in an ambiguous fashion. For example, it is shown that an increase in research costs can increase the equilibrium level of expected innovation.