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Firm Size vis-Ã -vis Industry Size and Innovation in a Dominant Firm-fringes Oligopoly Model

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  • Richa Shukla
  • Surajit Bhattacharyya
  • K. Narayanan

Abstract

This article explores the possibility of associating firm size vis-Ã -vis industry size with firm-level R&D led-innovation and the resultant impact(s) on industry level output and price. We consider an oligopolistic industry having one dominant firm and some fringes . Innovation by the dominant firm is viewed both as a technological breakthrough and as (cost) augmenting monetary expenditure. When innovation is considered as technological breakthrough, then for the benevolent industry leader, its scope for output expansion is more if R&D is induced by the industry size vis-Ã -vis firm size. However, when R&D led innovation is seen as cost augmenting, then the industry size induced innovation yields greater output if the dominant firm acts as a Stackelberg leader. Therefore, we show that exploiting the industry size renders a higher incentive to innovate for the industry leader in terms of capacity expansion.

Suggested Citation

  • Richa Shukla & Surajit Bhattacharyya & K. Narayanan, 2016. "Firm Size vis-Ã -vis Industry Size and Innovation in a Dominant Firm-fringes Oligopoly Model," Foreign Trade Review, , vol. 51(1), pages 13-25, February.
    • Handle: RePEc:sae:fortra:v:51:y:2016:i:1:p:13-25
    DOI: 10.1177/0015732515614436
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    References listed on IDEAS

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    2. Lanter, David & Hirsch, Stefan & Finger, Robert, 2018. "Profitability and Competition in EU Food Retailing," 2018 Annual Meeting, August 5-7, Washington, D.C. 274202, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Innovation; dominant firm; fringes; Cournot oligopoly;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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