Title

Process R&D and product line deletion by a multiproduct monopolist

Document Type

Journal article

Source Publication

Journal of Economics

Publication Date

7-1-2007

Volume

91

Issue

3

First Page

245

Last Page

262

Abstract

Relative to single-product firms, a multiproduct monopolist can internalize the negative externalities of its R&D investments (the "cannibalization effect") in two ways: (1) To lower R&D investment for each product; and (2) To delete some of its product lines so as to enlarge the market size for the remaining lines. It is shown that line deletion is profitable if products are close substitutes. If products are not close substitutes, the multiproduct monopolist keeps all product lines and invests less in cost-reducing R&D than single-product firms engaging in Cournot competition with product differentiation. However, it invests more in R&D than single-product firms if there are significant economies of scope in R&D, or if the oligopolistic firms can cooperate in their R&D decisions.

DOI

10.1007/s00712-007-0260-8

Print ISSN

09318658

E-ISSN

16177134

Publisher Statement

Copyright © Springer-Verlag 2007

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Full-text Version

Publisher’s Version

Recommended Citation

Lin, P. (2007). Process R&D and product line deletion by a multiproduct monopolist. Journal of Economics, 91(3), 245-262. doi: 10.1007/s00712-007-0260-8