TITLE:
Should We Enhance or Restrict Technological Diffusion from Major to Minor Firms?
AUTHORS:
Hideki Nakamura, Takeshi Ikeda
KEYWORDS:
Asymmetric Cournot Duopoly, R & D Competition, Technological Diffusion, Free-Riding and Taking-Away Effects
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
13,
2018
ABSTRACT: This study examines how technological diffusion from
a major firm to a minor firm affects social welfare via R & D competition
in an asymmetric Cournot duopoly. We assume that the minor firm can decrease
its production cost because of the spillover effect arising through R & D
by the major firm. R & D by the minor firm depends on the free-riding
effect and a taking-away effect that removes market share from the major firm.
If given a low R & D cost, both firms invest in R & D with an
appropriate level of technological diffusion, we can obtain a high level of
social welfare. However, an increase in the level of technological diffusion
could make the major firm abandon R & D activity. Given a high R & D
cost, a high level of welfare can be obtained only with a low level of
technological diffusion because the potential presence of technological
diffusion easily disrupts R & D by the major firm.