The Winner Curse and Social Inefficiency: Double Whammy of R&D Tournament

Authors

  • Arijit Mukherjee University of Nottingham and The Leverhulme Centre for Research in Globalisation and Economic Policy, UK, and CESifo, Germany
  • Leonard F.S. Wang Department of Applied Economics, National University of Kaohsiung

DOI:

https://doi.org/10.4067/S0718-27242011000400006

Keywords:

R&D tournament, Excessive entry, Insufficient entry

Abstract

In a R&D tournament setting with free entry and knowledge spillover, we show that the society would suffer from excessive entry and the patent holder would endure lower profits than non-patent holders because it bears the cost of commercializing and further technology development, while the other firms are beneficiaries of the spillover effects. This result is instructive to R&D and competition policy.

Downloads

Download data is not yet available.

Author Biographies

Arijit Mukherjee, University of Nottingham and The Leverhulme Centre for Research in Globalisation and Economic Policy, UK, and CESifo, Germany

Reader and Associate Professor, University of Nottingham Professor of Economics and Chairman, York University (January 1, 2012)

Leonard F.S. Wang, Department of Applied Economics, National University of Kaohsiung

Professor of Economics

References

ARROW, K. (1962) Economic welfare and the allocation of resources for invention. In: . Nelson, R. (ed.), The Rate and Direction of Inventive Activity. Princeton: Princeton University Press.

D’ASPREMONT, C., Jacquemin, A. (1988) Cooperative and noncooperative R&D in duopoly with spillovers. American Economic Review, 78, 1133–1137.

DE BONDT, R. (1997) Spillovers and innovative activities. International Journal of Industrial Organization, 15, 1-28.

FUDENBERG, D., Tirole, J. (2000) Pricing a network good to deter entry. Journal of Industrial Economics, 48, 373–390.

GHOSH, A., Morita, H. (2007a) Free entry and social efficiency under vertical oligopoly. Rand Journal of Economics, 38, 539–552.

GHOSH, A., Morita, H. (2007b) Social desirability of free entry: a bilateral oligopoly analysis. International Journal of Industrial Organization, 25, 925–934.

GHOSH, A., Saha, S. (2007) Excess entry in the absence of scale economies. Economic Theory, 30, 575–586.

HARUNA, S., Goel, R. K. (2011) R&D, free entry, and social efficiency. Economics of Innovation and New Technology, 20, 89-101.

KLEMPERER, P. (1988) Welfare effects of entry into markets with switching costs. Journal of Industrial Economics, 37, 159-165.

LAHIRI, S., Ono, Y. (1988) Helping minor firms reduces welfare. Economic Journal, 98, 1199–1202.

MANKIW, N.G., Whinston, M. D. (1986) Free entry and social inefficiency. Rand Journal of Economics, 17, 48–58.

MATSUMURA, T., Okamura, M. (2006) A note on the excess entry theorem in spatial markets. International Journal of Industrial Organization, 24, 1071–1076.

MUKHERJEE, A. (2006) Patents and R&D with imitation and licensing. Economics Letters, 93, 196-201.

MUKHERJEE, A. (2008) Patent protection and R&D with endogenous market structure. Journal of Industrial Economics, 56, 862 (full version is available at www.essex. ac.uk/jindec/).

MUKHERJEE, A. (2010). External economies of scale and insufficient entry. Journal of Industry, Competition and Trade, 10, 365-371.

MUKHERJEE, A. (2011a). Endogenous cost asymmetry and insufficient entry in the absence of scale economies. Journal of Economics (Forthcoming).

MUKHERJEE, A. (2011b) Social efficiency of entry with market leaders. Journal of Economics & Management Strategy (Forthcoming).

MUKHERJEE, A., Mukherjee, S. (2008) Excess-entry theorem: the implications of licensing. The Manchester School, 76, 675– 689.

NISVAN, E., Piccinin, D. (2010) Cooperative R&D under uncertainty with free entry. International Journal of Industrial Organization, 28, 74-85.

OKUNO-FUJIWARA, M., Suzumura, K. (1993) Symmetric Cournot oligopoly and economic welfare: a synthesis. Economic Theory, 3, 43–59.

POYAGO-THEOTOKY, J. (1999) A note on endogenous spillovers in a non-tournament R&D duopoly. Review of Industrial Organization, 15, 253-262.

ROY CHOWDHURY, P. (2005) Patents and R&D: the tournament effect. Economics Letters, 89, 120-26.

SCHUMPETER, J. (1943) Capitalism, Socialism and Democracy. London: Allan and Unwin.

SUZUMURA, K. (1995) Competition, Commitment and Welfare. Oxford: Clarendon Press.

SUZUMURA, K., Kiyono, K. (1987) Entry barriers and economic welfare. Review of Economic Studies, 54, 157–167.

TESORIERE, A. (2008) A further note on endogenous spillovers in a non-tournament R&D duopoly. Review of Industrial Organization, 33, 177-184.

VON WEIZSÄCKER, C.C. (1980) A welfare analysis of barriers to entry. Bell Journal of Economics, 11, 399– 420.

ZHOU , H. (2006) R&D tournaments with spillovers. Atlantic Economic Journal, 34, 327-339.

Downloads

Published

2011-11-24

How to Cite

Mukherjee, A., & Wang, L. F. (2011). The Winner Curse and Social Inefficiency: Double Whammy of R&D Tournament. Journal of Technology Management & Innovation, 6(4), 73–79. https://doi.org/10.4067/S0718-27242011000400006

Issue

Section

Research Articles