MARKET-STRUCTURE AND RESEARCH-AND-DEVELOPMENT COMPETITION

R&D is modelled as a random draw from a set of technologies for producing a homogeneous good. It is shown that both, a pure monopolist and Bertrand-oligopolists stop R&D at technology levels which are less productive than is socially desirable. With Bertrand-competition this 'reservation technology level' is independent of the number of firms. The effort per R&D project depends in general on the market structure, and total R&D expenditures generated in markets are smaller than the social optimum.