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Advantageous or Disadvantageous Semi-collusion Licensing in a Vertically Separated Industry

Author

Listed:
  • Arijit Mukherjee

    (Keele University, UK)

Abstract

This paper compares profits and consumer surplus under non-cooperation and collusion in the product market when the firms have the option for R&D before production. We show that whether R&D investment would be higher under non-cooperation or product market collusion depends on the R\&D productivity. If the market size is sufficiently small then firms are always better off under product market collusion. If the market size is moderate (relatively large) then the firms are better off under non- cooperation (semi-collusion) for sufficiently lower pre-innovation costs of production. We also show that in case of moderate (relatively large) market size, firms are better off under non-cooperation for relatively lower (higher) R&D productivity. However, we find that consumer welfare is always higher under non-cooperation in product market compared to collusion in product market.

Suggested Citation

  • Arijit Mukherjee, 2002. "Advantageous or Disadvantageous Semi-collusion Licensing in a Vertically Separated Industry," Industrial Organization 0211006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0211006
    Note: Type of Document - pdf; prepared on pc; pages: 28
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0211/0211006.pdf
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    References listed on IDEAS

    as
    1. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    2. Akihiko Matsui, 1987. "Consumer-Benefited Cartels Under Strategic Capital Investment Competition," Discussion Papers 798, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Shannon K. Mitchell, 1993. "The Welfare Effects of Rent-Saving and Rent-Seeking," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 660-669, August.
    4. repec:bla:jindec:v:47:y:1999:i:2:p:221-30 is not listed on IDEAS
    5. Choi, Jay Pil, 1993. "Cooperative R&D with product market competition," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 553-571.
    6. Matusui, Akihiko, 1989. "Consumer-benefited cartels under strategic capital investment competition," International Journal of Industrial Organization, Elsevier, vol. 7(4), pages 451-470, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Entry; Consumer surplus; Collusion; Profit; Uncertain R&D;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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