BASIC RESEARCH AND DEVELOPMENT IN VERTICAL MARKETS

Authors

  • MIGUEL GONZÁLEZ-MAESTRE,

    1. Universidad de Murcia
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  • LUIS M. GRANERO

    1. Universitat de València
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    • We thank Ramon Caminal, Luis Corchón, M. Paz Coscollá, Bronwyn Hall, Gerard Llobet, Chrysovalantou Milliou, three referees and seminar audiences at the EARIE Annual Conference in Amsterdam, the XXII Jornadas de Economía Industrial in Barcelona and the Zvi Griliches School of Innovation Economics in Santander for their very useful comments. We acknowledge financial support from the Spanish Ministry of Education and Science (projects ECO2008-02654/ECON, ECO2009-07616/ECON, ECO2009-13669) and the Seneca Foundation, Agency of Science and Technology of the Region of Murcia (project 11885/PHCS/09). The usual disclaimer applies.


  • Manuscript received 8.2.10; final version received 24.2.11.

Abstract

This paper considers the role of basic research and development (R&D) investment in vertical markets in which an incumbent owner of a basic technological input faces potential competition. We identify the conditions under which the socially optimal investment in basic research involves entry by new firms. Our main insight is that there is a role for public investment in R&D that appears to have been overlooked in the existing literature. This role draws on the idea that basic R&D adds to the credibility of the threat of the potential development of alternative technologies by reducing their implementation costs.

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