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The effects of competition on the R&D portfolios of multiproduct firms

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  • Lin, Ping
  • Zhou, Wen

Abstract

We investigate the R&D portfolio choices of multiproduct firms. When a firm increases cost-reducing R&D investment in a given product, its rivals will modify their entire R&D portfolios by reducing R&D investments in that particular product and increasing R&D investments in other competing products. Our analysis demonstrates that R&D portfolios will be more specialized when firms face greater competition, which will be the case if products become closer substitutes, a monopolist begins to face competition from a rival firm, or firms compete on price rather than quantity. R&D cooperation allows firms to internalize the negative externalities of their R&D investments in two ways: by reducing such investments across all products and by increasingly focusing their R&D portfolios on different products. Firms may completely shut down a subset of their R&D projects under R&D cooperation if the products concerned are sufficiently close substitutes.

Suggested Citation

  • Lin, Ping & Zhou, Wen, 2013. "The effects of competition on the R&D portfolios of multiproduct firms," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 83-91.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:1:p:83-91
    DOI: 10.1016/j.ijindorg.2012.11.003
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    Cited by:

    1. Patrick Herbst & Eric Jahn, 2017. "IP-for-IP or Cash-for-IP? R&D Competition and the Market for Technology," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 75-101, August.
    2. Kyung Hwan Baik & Sang-Kee Kim, 2020. "Observable versus unobservable R&D investments in duopolies," Journal of Economics, Springer, vol. 130(1), pages 37-66, June.
    3. Taehyun Ko & Jaeram Lee & Daehyeon Park & Doojin Ryu, 2023. "Supply chain transparency as a signal of ethical production," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1565-1573, April.
    4. Stephen Jui-Hsien Chou, 2013. "R&D Policy Competition with Process Innovation in a Multi-Product Duopoly," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 53-76, November.
    5. Dawid, Herbert & Keoula, Michel Y. & Kopel, Michael & Kort, Peter M., 2015. "Product innovation incentives by an incumbent firm: A dynamic analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 411-438.

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    More about this item

    Keywords

    R&D portfolio; Multiproduct firms; Cross-market effect; R&D cooperation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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