R&D Investments Under Endogenous Cluster Formation

Dawid H, Hellmann T (2016) Working Papers in Economics and Management; 04-2016.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

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Abstract
We study investments in R&D and the formation of R&D clusters of firms which are competitors in the market. In a three stage game, firms first decide on the budget allocated to their R&D department, then form research clusters and finally compete in quantities. The second stage cluster formation is modeled by the unanimity game introduced in Bloch(1995). We show that for any distribution of R&D investments, an equilibrium of the second stage cluster formation exists and is generically unique up to a permutation of firms which chose the same investment. Restricting to two investment levels in the first stage, we provide a complete characterization of the equilibria of the three stage game. We show that for some range of investment costs, equilibria with no-investment co-exist with equilibria where a large fraction or even all firms invest in R&D. Furthermore, in the high-investment equilibrium firms over{invest compared to a scenario where research clusters are ex-ante fixed and also compared to the welfare optimum.
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Dawid H, Hellmann T. R&D Investments Under Endogenous Cluster Formation. Working Papers in Economics and Management. Vol 04-2016. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2016.
Dawid, H., & Hellmann, T. (2016). R&D Investments Under Endogenous Cluster Formation (Working Papers in Economics and Management, 04-2016). Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Dawid, H., and Hellmann, T. (2016). R&D Investments Under Endogenous Cluster Formation. Working Papers in Economics and Management, 04-2016, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Dawid, H., & Hellmann, T., 2016. R&D Investments Under Endogenous Cluster Formation, Working Papers in Economics and Management, no.04-2016, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
H. Dawid and T. Hellmann, R&D Investments Under Endogenous Cluster Formation, Working Papers in Economics and Management, vol. 04-2016, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2016.
Dawid, H., Hellmann, T.: R&D Investments Under Endogenous Cluster Formation. Working Papers in Economics and Management, 04-2016. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2016).
Dawid, Herbert, and Hellmann, Tim. R&D Investments Under Endogenous Cluster Formation. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2016. Working Papers in Economics and Management. 04-2016.
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