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Multi‐Market Competition, R&D, and Welfare in Oligopoly
Author(s) -
Kawasaki Akio,
Lin Ming Hsin,
Matsushima Noriaki
Publication year - 2014
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2012.190
Subject(s) - cournot competition , oligopoly , diversification (marketing strategy) , competitor analysis , welfare , profit (economics) , microeconomics , industrial organization , economics , competition (biology) , market structure , social welfare , business , market economy , marketing , ecology , biology , management , political science , law
We investigate a multi‐market Cournot model with strategic process research and development (R&D) investments wherein a multi‐market firm meets new competitors that enter one of the markets. We show that entry can enhance the total R&D expenditures of the multi‐market firm. Moreover, the incumbent's profit nonmonotonically changes as the number of entrants increases. Depending on the fixed entry costs and R&D technologies, both insufficient and excess entry can appear. Our results imply that diversification of their products can be a useful strategy for firms.