Product differentiation, process R&D, and the nature of market competition
European Economic Review
We investigate the relationship between process and product R&D and compare the incentives for both types of R&D under different modes of market competition (Bertrand versus Cournot). It is shown that: (i) process R&D investments increase with the degree of product differentiation and firms invest more in product R&D when they can do process R&D than when they cannot; (ii) Bertrand firms have a stronger incentive for product R&D whereas Cournot firms invest more in process R&D; and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.
Copyright © 2002 Elsevier Science B.V.
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Lin, P., & Saggi, K. (2002). Product differentiation, process R&D, and the nature of market competition. European Economic Review, 46(1), 201-211. doi: 10.1016/S0014-2921(00)00090-8