The Impact of Product Differentiation on Symmetric R&D Networks
Alghamdi, Mohamad . 2020
This paper examines the impact of product differentiation on an R&D network. We find that when firms produce goods that are complements or independent, R&D expenditure, prices, firms’ net profits and total welfare are always higher under price competition than under quantity competition. When goods are substitutes, R&D expenditure and profits are higher under quantity competition than under price competition. Also, when goods are substitutes and products are sufficiently differentiated, then total welfare is higher in the Bertrand equilibrium than under the Cournot equilibrium. Beyond this threshold level of product differentiation, Cournot competition is superior in terms of social welfare. The paper finds that the key threshold level of product differentiation, determining the relative superiority of the Cournot and Bertrand equilibrium when goods are substitutes, depends on the cost efficiency of R&D and the number of collaborative partnerships that firms are participate, relative to the size of the network. We show that when goods are substitutes, if the network is dense so that the number of partnerships is large relative to the number of firms operating in the market, then the threshold value of the product differentiation parameter can be small.
The paper investigates the influence of dense collaborative R&D structures between firms as stable standard networks on equilibrium outcomes.
The purpose of the paper is to define the basic conditions on cooperation of firms in research and development (R&D) to guarantee maximum outcomes.
This paper contributes to the empirical study of the cooperation of companies in research and development (R&D). The contribution is based primarily on the…