Drastic innovation reduces firms’ incentives to create divisions

Risultato della ricerca: Article

Abstract

I study a game in which two firms create independent divisions, then they choose whether to do R&D so as to reduce their divisions’ marginal costs, and then the divisions compete in the market. I provide necessary and sufficient conditions under which the game has an equilibrium in pure strategies, and I show that the game has an equilibrium only if each firm threatens that if the rival creates more divisions it will use R&D to foreclose the market. The case we find in the literature, in which firms flood the market with their divisions, should happen only in industries with low returns to R&D.
Lingua originaleEnglish
Numero di pagine26
RivistaEconomia Politica
Stato di pubblicazionePublished - 2020

All Science Journal Classification (ASJC) codes

  • Finance
  • Sociology and Political Science
  • Economics and Econometrics

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