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Cost-Reducing and Demand-Creating R&D With Spillovers

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  • Richard C. Levin
  • Peter C. Reiss

Abstract

This paper analyzes R&D policies when the returns to cost-reducing and demand-creating R&D are imperfectly appropriable and market structure is endogenous. Previous characterizations of appropriability are generalized to permit the possibility that own and rival R&D are imperfect substitutes. We also describe how. equilibrium expenditures on process and product R&D, as well as equilibrium market structure, depend on technological opportunities and spillovers. In contrast to previous work, diminished appropriability does not necessarily reduce R&D expenditures. For example, under some conditions, an increase in the extent of process (product) spillovers will lead to an increase in product (process) R&D. We estimate several variants of the model using manufacturing line of business data and data from a survey of R&D executives.

Suggested Citation

  • Richard C. Levin & Peter C. Reiss, 1989. "Cost-Reducing and Demand-Creating R&D With Spillovers," NBER Working Papers 2876, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2876
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    References listed on IDEAS

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    2. José M. Labeaga & Ester Martínez Ros, "undated". "Persistence and ability in the innovation decisions," Working Papers 2005-16, FEDEA.
    3. Silva, Felipe & Braga, Marcelo J. & Garcia, Joao, 2015. "Link Between R&D Intensity and Market Concentration: Analysis of Brazilian Corn and Soybean Seed Markets," 2015 Conference, August 9-14, 2015, Milan, Italy 211563, International Association of Agricultural Economists.
    4. Rammer, Christian & Costard, Jano & Seliger, Florian & Schubert, Torben, 2008. "Bestimmungsgründe des Innovationserfolgs von baden-württembergischen KMU," ZEW Dokumentationen 08-05, ZEW - Leibniz Centre for European Economic Research.
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    6. Alsharkas Zeina, 2014. "Firm Size, Competition, Financing and Innovation," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 44(1), pages 51-73, December.
    7. Wittfoth, Sven & Berger, Theo & Moehrle, Martin G., 2022. "Revisiting the innovation dynamics theory: How effectiveness- and efficiency-oriented process innovations accompany product innovations," Technovation, Elsevier, vol. 112(C).

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