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A Kantian Analysis of Pricing and R & D

Author

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  • Murat Donduran

    (Yildiz Technical University)

  • Burak Ünveren

    (Yildiz Technical University)

Abstract

Can cooperation offer an innovative alternative to competition among firms? This design problem is analyzed in the context of Kantian cooperation among firms in a two-stage model. In the first stage, firms invest in R&D, which increases the probability of obtaining a superior technology. In the second stage, firms observe their technology, and choose their prices. The equilibrium R&D levels under competition, Kantian cooperation, and cartel cooperation are analyzed and compared. We show that without (with) perfect research spillovers, Kantian price cooperation supports weakly higher (lower) R&D than does cartel price cooperation. Moreover, the results are compared to the social optimum. Among the cases that we studied, only Kantian cooperative pricing with competitive R&D can induce an R&D investment that exceeds the socially optimal level, and all other R&D outcomes in our study unambiguously fall below the socially optimum level.

Suggested Citation

  • Murat Donduran & Burak Ünveren, 2021. "A Kantian Analysis of Pricing and R & D," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(4), pages 583-605, June.
    • Handle: RePEc:kap:revind:v:58:y:2021:i:4:d:10.1007_s11151-020-09801-y
    DOI: 10.1007/s11151-020-09801-y
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    Cited by:

    1. Ünveren, Burak & Donduran, Murat & Barokas, Guy, 2023. "On self- and other-regarding cooperation: Kant versus Berge," Games and Economic Behavior, Elsevier, vol. 141(C), pages 1-20.
    2. Yasuhiko Nakamura, 2022. "Endogenous Determination of Strategies in a Kantian Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 22(3), pages 519-533, December.

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