Abstract
We investigate the RandD portfolio choices of multiproduct firms. When a firm increases cost-reducing RandD investment in a given product, its rivals will modify their entire RandD portfolios by reducing RandD investments in that particular product and increasing RandD investments in other competing products. Our analysis demonstrates that RandD portfolios will be more specialized when firms face greater competition, which will be the case if products become closer substitutes, a monopolist begins to face competition from a rival firm, or firms compete on price rather than quantity. RandD cooperation allows firms to internalize the negative externalities of their RandD investments in two ways: by reducing such investments across all products and by increasingly focusing their RandD portfolios on different products. Firms may completely shut down a subset of their RandD projects under RandD cooperation if the products concerned are sufficiently close substitutes.
| Original language | English |
|---|---|
| Pages (from-to) | 83-91 |
| Number of pages | 9 |
| Journal | International Journal of Industrial Organization |
| Volume | 31 |
| Issue number | 1 |
| Early online date | 28 Nov 2012 |
| DOIs | |
| Publication status | Published - Jan 2013 |
Keywords
- R&D portfolio
- Multiproduct firms
- Cross-market effect
- R&D cooperation