ON THE IMPACTS OF R&D SUPPORT AND ON SPECIALIZATION IN THE PRODUCTION OF NEW KNOWLEDGE

Abstract

This study considers situations in which specialized innovators and incumbent manufacturers trade on innovations. Manufacturers also invest in their own R&D, and only if they are unsuccessful do they go to the outside market for innovations. We then consider the impacts of public R&D support and show that the desired direct effect on R&D investments or on the number of new innovators easily crowds out in the form of indirect market repercussions. We also show that an industry's natural growth does not induce manufacturers to specialize in either purely in-house or in purely out-house provision of new knowledge.

Keywords:

• Trading innovations
• R&D support
• Specialization in the provision of new knowledge

Notes

¹Rusticini et al. (1994) showed that in the so-called k-double auction of multiple sellers and buyers an already fairly small number of sellers and buyers leads to price-taking behavior which guarantees efficient allocation. This result supplements the earlier results of Wilson (1985) and Satterthwaite and Williams (1989), who considered a double auction in which only the buyers were assumed to bid below their reservation values.

²Maskin and Riley analyzed (2000) an auction mechanism in which the buyers’ beliefs are asymmetric. They assumed two buyers—a strong one and a weak one—whose beliefs are drawn from different distributions. The distribution of the strong buyer's valuation first-order stochastically dominates that of the weak buyer. The latter assumption is not valid in the situation considered in our study.

Additional information

Notes on contributors

Eero Lehto

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