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

Relative to single-product firms, a multiproduct monopolist can internalize the negative externalities of its RandD investments (the "cannibalization effect") in two ways: (1) To lower RandD 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 RandD than single-product firms engaging in Cournot competition with product differentiation. However, it invests more in RandD than single-product firms if there are significant economies of scope in RandD, or if the oligopolistic firms can cooperate in their RandD decisions.