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ABSTRACT:
We examine the effects of market structure and the internal organization of firms on equilibrium R&D projects. We compare a monopolist’s choice of R&D portfolio to that of a welfare maximizer. We next show that Sah and Stiglitz’s finding that the market portfolio of R&D is independent of the number of firms under Bertrand competition extends to neither Cournot oligopoly nor a cartel. We also show that the ability of firms to pre-empt R&D by rivals along particular research paths can lead to socially excessive R&D diversification. Lastly, using Sah and Stiglitz’s definition of hierarchy, we establish conditions under which larger hierarchies invest in smaller portfolios.

SUGGESTED CITATION:
Joseph Farrell, Richard Gilbert, and Michael Katz, "Market Structure, Organizational Structure, and R&D Diversity" (September 9, 2002). Competition Policy Center. Paper CPC02-034.
http://repositories.cdlib.org/iber/cpc/CPC02-034