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Market Competition, R&D and Firm Profits in

Asymmetric Oligopoly

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Junichiro Ishida, Toshihiro Matsumura and Noriaki Matsushima

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JIE(2011)

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We investigate a Cournot model with strategic R&D   investments wherein efficient low-cost firms compete against less efficient high-cost firms. We find that an increase in the number of high-cost firms can stimulate R&D by the low-cost firms, while it always reduces R&D by the high-cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low-cost firms¡¦ profits may indeed increase with the number of high-cost firms. An implication of this result is far-reaching, as it gives low-cost firms an incentive to help, rather than harm, high-cost competitors. We relate this implication to a practice known as open knowledge disclosure, especially Ford¡¦s strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.