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Endogenous R&D Spillover and Location Choice in a Mixed Oligopoly

Jianhu Zhang  & Changying Li

Working paper

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Changying Li

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We consider a three-stage game where a public firm and a private firm choose R&D, location and price, under the assumption that R&D spillovers rely on their locations. We show that, in equilibrium, whether the public firm engages in innovation more aggressively than the private firm depends on the degree of spillovers. Moreover, firms¡¦ equilibrium locations exhibit neither maximal nor minimal differentiation. Finally, privatization could reduce social welfare because it may generate inefficient location and insufficient R&D investment. This suggests that a mixed duopoly could be socially preferable to a private duopoly in the presence of endogenous R&D spillovers.