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Entry Deterrence through Fixed Cost Reducing R&D

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  • Gamal Atallah

Abstract

The paper explores the role of R&D investments reducing fixed production costs in entry deterrence. An incumbent monopolist and a potential entrant can perform R&D to reduce their fixed production costs, with bidirectional and asymmetric technological spillovers. It is shown that deterrence, which takes the form of underinvestment in R&D by the incumbent, is more likely when the spillover from the incumbent to the potential entrant is high, when the spillover from the potential entrant to the incumbent is low, and when the fixed cost is intermediate. The role of two policy instruments, R&D subsidies and intellectual property protection, is examined.

Suggested Citation

  • Gamal Atallah, 2007. "Entry Deterrence through Fixed Cost Reducing R&D," Rivista di Politica Economica, SIPI Spa, vol. 97(4), pages 49-78, July-Agou.
    • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:4:p:49-78
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    1. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
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    5. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
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    7. Emmanuel Petrakis & Joanna Poyago‐Theotoky, 2002. "R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 37-52, March.
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    9. Karolina Ekholm & Johan Torstensson, 1997. "High-Technology Subsidies in General Equilibrium: A Sector-Specific Approach," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1184-1203, November.
    10. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
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    Cited by:

    1. Khazabi, Massoud & Quyen, Nguyen, 2011. "R&D Spillovers, Innovation, and Entry," MPRA Paper 39460, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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