Resum:
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In a recent paper Tishler and Milstein (2009) fi…nd that increased competition
may increase aggregate R&D spending while market output decreases. Therefore,
they obtain the surprising result that R&D spending is excessive when competition
becomes intense. Their result is based on the standard linear demand function for
differentiated products introduced by Bowley (1924) where decreased product differentiation is interpreted as more competitive pressure. In this paper I show that
at an aggregate level this interpretation is problematic because equilibrium effects
are dominated by a demand reduction effect. A slight modifi…cation of the standard
demand function eliminates this effect. For the Tishler and Milstein (2009) setting
it is shown that then increased competition increases both R&D spending and aggregate market output. Therefore, at least for consumers, more intense competition
increases welfare.
Journal of Economic Literature Classi…fication Numbers: D43, L1, O3.
Keywords: Oligopoly markets, Product differentiation, Competitive pressure. |