Competition and innovation with horizontal R&D spillovers

Abstract

Purpose

The purpose of this paper is to extend a theoretical framework for analyzing competition and innovation in the presence of horizontal spillovers.

Design/methodology/approach

A theoretical analysis approach is adopted to drive the paper’s findings.

Findings

It is shown that when firms behave non-cooperatively in both the R&D and production stages, the degree of spillover has a negative relationship with the effective and respective R&D expenditures of each firm as well as the level of social welfare. An inverted-U relationship between competition and social welfare also holds. When firms behave cooperatively in the R&D stage, and non-cooperatively in the production stage the relationship between the R&D expenditure of the joint research lab and the number of firms in the market is negative.

Originality/value

In the literature on R&D spillovers and process innovation, efforts are mostly focused on the comparative R&D expenditures and the relative social welfare between non-cooperative and cooperative R&D. The question of the effectiveness of R&D technology on the optimal number of firm, however, is not explicitly addressed. The paper is intended to address this lacuna.

Citation

Khazabi, M. and Quyen, N.V. (2017), "Competition and innovation with horizontal R&D spillovers", Journal of Economic Studies, Vol. 44 No. 3, pp. 475-488. https://doi.org/10.1108/JES-12-2015-0226