R&D Activities in Oligopoly and Social Welfare

Abstract

This paper analyzes the impact of R&D activities in an oligopoly on consumer surplus and social welfare. We use a two-stage model to analyze the behavior of duopolists at the research level, and in the final-product market, under the assumption of linear and quadratic cost functions. Three options for firm competition are considered: 1) Cournot competition at both stages; 2) cooperation at the R&D stage and Cournot competition in the final-product market; and 3) cooperation at both stages. Numerical simulations for various levels of R&D spillovers are conducted to analyze the welfare effects of firm decisions. We conclude that for high levels of technological spillovers, total welfare is highest when firms engage in cooperation at the R&D stage, and compete in the final product market, independent of the shape of cost functions. However, the functional form of production costs has a qualitative impact on welfare when firms fully compete.

Selling on Farm or on the Market: What Kind of Arbitrage for Smallholders’ Farmers in South-Kivu, Democratic Republic of Congo?

“…This result provides an empirical proof of the possible instability of price collusive cartels on agricultural markets. This topic was the subject of several theoretical studies in particular (d' Aspremont et al, 1983;d'Aspremont and Gabszewicz, 1986;Donsimoni et al, 1986;Lambertini, 1996;Prokop, 2009).…”

“…Products to be bought: They organize themselves in association by products that they predominantly want to buy in the rural areas. This creates some homogeneity between intermediaries according to products which can be a source of cartel instability mainly in terms of price rules (Prokop, 2009). This is in some sense rational to limit competition between buyers for the same product to keep a strong bargaining power when facing the farmers.…”