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Mixed R&D Duopoly under Uncertainty and Easy Imitation
Journal of Comparative Economics (1998)
  • Joanna Poyago-Theotoky, Loughborough University

A well established result in the R&D literature is that when imitation is easy there will be generally underinvestment due to the free-rider problem. This paper shows that a public firm can be used in tackling the problem of underinvestment. We find that (i) in a mixed duopoly the public firm invests more in R&D than the private firm, (ii) in the mixed duopoly the private firm reduces its R&D investment relative to the private duopoly, while the public firm spends relatively more in R&D, (iii) relative to the social optimum, in the mixed duopoly the public firm overinvests while the private firm underinvests in R&D. A social welfare comparison between the private and the mixed duopoly proves ambiguous. By way of an example, using a quadratic R&D function, we show that depending on the size of the innovation, social welfare in the mixed duopoly can be higher than in the private duopoly.

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Citation Information
Joanna Poyago-Theotoky. "Mixed R&D Duopoly under Uncertainty and Easy Imitation" Journal of Comparative Economics Vol. 26 Iss. 3 (1998)
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