cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

unequal treatment of identical agents in cournot equilibrium oligopoly models where prior actions by firms affect subsequent marginal costs have been useful in illuminating policy debates in areas such as antitrust regulation environmental protection and international competition we discuss properties of such models when a cournot equilibrium occurs at the second stage aggregate production costs strictly decline with no change in gross revenue or gross consumer surplus if the prior actions strictly increase the variance of marginal costs without changing the marginal cost sum therefore unless the cost of inducing second stage asymmetry more than offsets this reduction in production costs the private and social optima are asymmetric

dynamic coalition formation and the core this paper presents a dynamic model of endogenous coalition formation in cooperative games with transferable utility tu the players are boundedly rational at each time step a player decides which of the existing coalitions to join and demands a payoff these decisions are determined by a best reply rule given the coalition structure and allocation in the previous period further the players experiment with myopically suboptimal strategies whenever there are potential gains from trade we establish an isomorphism between the set of absorbing states of the process and the set of core allocations and show that the process converges to one of these states with probability one whenever the core is non empty these results do not require superadditivity of the characteristic function and they carry over to the case of coalitional values depending on the coalition structure and to non transferable utility ntu games

an evolutionary model of bargaining abstract individuals from two populations of bargainers are randomly matched to play the nash demand game they make their demands by choosing best replies based on an incomplete knowledge of the precedents and occasionally they choose randomly there is no common knowledge over the long run typically one division will be observed almost all of the time this stochastically stable division is close to the nash solution when all agents in the same population are alike when the populations are heterogeneous a generalization of the nash solution results if there is some mixing between the two populations the stable division is fifty fifty journal of economic literature classification number c78

optimal asymmetric strategies in research joint ventures abstract this paper identifies an overlooked implication of models of research joint ventures initiated by d aspremont and jacquemin 1988 even though the aggregate r d cost of identical firms in a research joint venture would be lowest if they invested equally to reduce subsequent production costs nonetheless members may often enlarge their overall joint profit by making unequal investments such a strategy raises costs in the investment stage but may create more than offsetting benefits in the production stage since industry profits are larger there when the firms are of unequal size when the consideration leading to asymmetry prevails we find that in contrast to previous work a research joint venture can raise welfare even when there are no spillovers

cooperative and noncooperative r d in an oligopoly with spillovers this paper examines the positive and normative effects of cooperative r d whereby member firms commit themselves to the joint profit maximizing level of r d in a precompetitive stage but remain fierce competitors in the product market vis a vis noncooperative r d socially first best r d and socially second best r d in the presence of sufficiently large r d spillovers neither noncooperative nor cooperative equilibria achieve even second best r d levels in the absence of spillover effects however while the cooperative r d level remains socially insufficient the noncooperative level may overshoot first and second best levels of r d copyright 1992 by american economic association

a prospect theory nash bargaining solution and its stochastic stability abstract we consider the long run outcomes of bargaining games when players obey prospect theory we extend the evolutionary bargaining model of young 1993 to a two stage nash demand game two players simultaneously choose whether to exercise an outside option in the first stage and play the nash demand game in the second stage which will be reached only if neither player exercises the outside option we address the influence on the stochastically stable division of reference dependent preferences where the reference point is the value of the outside option we show that the division consistently differs from the nash bargaining solution under expected utility theory inspired by this we propose a prospect theory nash bargaining solution which coincides with the stochastically stable division

stochastic stability under logit choice in coalitional bargaining problems abstract this study examines a dynamic process of n person coalitional bargaining problems we investigate the evolution of social conventions by embedding a coalitional bargaining setting in a dynamic process in each period a group of players may make some coalitional move that is forming a new team or negotiating the division of a surplus players revise their coalitions and surplus divisions over time in the presence of stochastic noise which leads players to make a suboptimal decision under a logit specification of choice probabilities we find that the stability of a core allocation decreases in the wealth of the richest player furthermore stochastically stable allocations are core allocations that minimize the wealth of the richest player

uncertainty spillovers and cooperative r d abstract this paper extends the literature on cooperative r d in an oligopoly with spillovers the model has three new features it introduces uncertainty focuses on spillover of innovation instead of effort spillover and offers a new definition of the research joint venture rjv the rjv is an arrangement to coordinate r d efforts and also to share the innovation firms form an rjv only if the innovation raises flow industry profit but independently of the speed of spillovers and the degree of uncertainty the model is robust when we allow for licensing the single lab endogenous spillovers and r d effort spillovers

game theoretic analysis of a bankruptcy problem from the talmud abstract for three different bankruptcy problems the 2000 year old babylonian talmud prescribes solutions that equal precisely the nucleoli of the corresponding coalitional games a rationale for these solutions that is independent of game theory is given in terms of the talmudic principle of equal division of the contested amount this rationale leads to a unique solution for all bankruptcy problems which always coincides with the nucleolus two other rationales for the same rule are suggested in terms of other talmudic principles needless to say the rule in question is not proportional division

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

noncooperative versus cooperative r d with endogenous spillover rates this paper deals with a general version of a two stage model of r d and product market competition we provide a thorough generalization of previous results on the comparative performance of noncooperative and cooperative r d dispensing in particular with ex post firm symmetry and linear demand assumptions we also characterize the structure of profit maximizing r d cartels where firms competing in a product market jointly decide r d expenditure as well as internal spillover levels we establish the firms would essentially always prefer extremal spillovers and within the context of a standard specification derive conditions for the optimality of minimal spillover

cooperative and noncooperative r d in duopoly with spillovers comment claude d aspremont and alexis jacquemin 1988 employ a simple yet elegant symmetric duopoly model of r d and spillovers to compare several equilibrium concepts these concepts include 1 the two stage noncooperative solution 2 the two stage mixed game 3 the two stage fully cooperative solution 2 and 4 the social planner s optimum 3 for each of the cases stated above they computed the equilibrium levels of output q q1 q2 and r d xl x2 x and the required second order conditions they report i for large spillovers i e b 0 5 x x x and q q q q and ii for small spillovers i e 3 x 2x x and q q q q where x denotes a firm s r d level q denotes total industry output denotes the social optimum denotes the fully cooperative model the noncooperative two stage case and the mixed game 3 is the spillover parameter here we show that comparing the pure cooperative and the pure noncooperative solutions as defined by d aspremont and jacquemin is only meaningful when the noncooperative solution is stable that is when spillovers are not too small we find that for very small spillovers in our example this occurs when 3 0 17 the d aspremont jacquemin observation holds because the noncooperative model is unstable the importance of this result rests on the fact that even though the output reaction functions cross correctly when 3 0 17 the r d reaction functions do not when 0 17 0 41 stability obtains but r d levels are higher in the noncooperative case than the fully cooperative one for large spillovers the d aspremont jacquemin result is confirmed moreover we find that the introduction of spillovers in the case of the noncooperative model tends to promote stability in the case of the cooperative model however as the level of spillovers is increased an equilibrium ceases to exist

equilibrium and optimal size of a research joint venture in an oligopoly with spillovers this paper analyzes a simple oligopoly model with information spillovers firms spend on r d to affect their costs of production the main finding is that depending on the magnitude of the spillover the market may not provide enough incentives for the optimum degree of cooperation to take place it is shown that the equilibrium size of a research joint venture is usually less than the optimum size which requires all firms to participate in the research joint venture the policy implications of this result are that there should be encouragement for firms competing in high technology industries to form industry wide cooperative agreements copyright 1995 by blackwell publishing ltd

modelling imperfectly appropriable r d via spillovers abstract we provide an extensive comparison of the well known r d models of d aspremont jacquemin and kamien muller zang exposing full or partial conflict in key conclusions and policy prescriptions using a mix of formal and or intuitive criteria we argue that the first model is of questionable validity for large spillover values the latter being characterized by jointly increasing returns to scale in the r d process an argument leading to equivalence between the two r d processes but not to agreement on some key conclusions is exposited in conclusion the models emerge as fundamentally different although a unilateral shift in the cost function of the first leads to agreement in all equilibrium outcomes

perturbed adaptive dynamics in coalition form games abstract players adaptively learn how to bargain a characteristic function describes the available surplus the underlying bargaining game extends the nash demand game by allowing subcoalitions to reach an agreement players demands must be multiples of a money unit we show that stochastically stable allocations ssa i e allocations that are most stable to unlikely errors are a subset of the core uniqueness does not obtain even when the money unit becomes arbitrarily small nonetheless every ssa is related to the allocation that maximizes the product of players utilities over the core i e constrained egalitarian solution for tu games journal of economic literature classification numbers c71 c72 c78

adaptive play in multiplayer bargaining situations we study the dual issues of allocation and coalition formation in a model of social learning for a class of economies which can be expressed in terms of a real valued characteristic function we first show that all self perpetuating allocations realized from a simple bargaining game must be core allocations although players make simultaneous demands for surplus and only on their own behalf following this we provide a sufficient condition under which the society eventually learns to divide the surplus according to some core allocation regardless of the initial history

on the dynamic efficiency of bertrand and cournot equilibria abstract this paper compares bertrand and cournot equilibria in a differentiated duopoly with r d research and development competition it shows that cournot competition induces more r d effort than bertrand competition however the price is lower and output is larger in bertrand than in cournot competition furthermore the bertrand equilibrium is more efficient than the cournot equilibrium if either r d productivity is low or spillovers are weak or products are very different if r d productivity is high spillovers are strong and goods are close substitutes then the bertrand equilibrium islessefficient than the cournot equilibrium journal of economic literatureclassification number l13

dynamic coalition reformation for adaptive demand and capacity sharing abstract to deal with volatile product demand and rapidly changing manufacturing technologies for sustainable returns selective collaboration among companies in supply networks sns is required recently demand and capacity sharing among independent and non competitive manufacturers at the same horizontal layer in sns has been studied through an appropriate coalition for collaborative demand and capacity sharing manufacturers can minimize their lost sales as well as maximize production capacity utilization against lumpy real demand in a previous study we have developed the collaborative demand and capacity sharing cdcs protocol which addresses a long term profitable and well balanced collaboration for each manufacturer through distributed decision making however the uncertainty of circumstances calls for an effective and timely reformation of coalitions in reality there is a trade off between frequent accommodation to changeable environments and high additional costs incurred by reformation hence in this paper we design the adaptive cdcs protocol based on dynamic contract mechanism in each period our protocol suggests whether to reform existing coalitions or not based on theoretical analyses of long term expected net profit to evaluate its performance a numerical experiment is conducted by comparing three models no collaboration static collaboration and dynamic collaboration by adaptive cdcs protocol dynamic collaboration results in more profits and its balanced redistribution by accommodating with changeable conditions

conflict leads to cooperation in demand bargaining abstract we consider a multilateral nash demand game in which short sighted players come to the bargaining table with requests for both coalition partners and the potentially generated resource we prove that the resulting process converges with probability one to a state in which all players agree on a strictly self enforcing division of resources i e a strict core allocation highlighting group dynamics we show how the myopic actions of players may lead to the break up of groups in the short run but can ultimately bring about a situation from which a strictly self enforcing allocation can be reached

a noncooperative theory of coalitional bargaining the authors explore a sequential offers model of n person coalitional bargaining with transferable utility and with time discounting their focus is on the efficiency properties of stationary equilibria of strictly superadditive games when the discount factor delta is sufficiently large it is shown that delay and the formation of inefficient subcoalitions can occur in equilibrium the latter for some or all orders of proposer however efficient stationary equilibrium payoffs converge to a point in the core as delta approaches one strict convexity is a sufficient condition for there to exist an efficient stationary equilibrium payoff vector for sufficiently high delta

endogenous spillovers and the performance of research joint ventures we present a model of r d with endogenous spillovers and demonstrate that noncooperation can produce maximal spillovers the only other noncooperative outcome is minimal spillovers when noncooperation achieves maximal spillovers so does an rjv whereas minimal noncooperative spillovers imply partial but not necessarily maximal spillovers by an rjv partial rjv spillovers are chosen for anti competitive reasons and an rjv may also close a lab for anti competitive reasons the possibility of anti competitive outcomes is precluded in the existing literature on rjvs which focuses on symmetric outcomes our model predicts when anti competitive behaviour by an rjv arises

cooperative r d and vertical product differentiation abstract a partial equilibrium model with vertical product differentiation coumot competition and quality determined by r d expenses is analysed cooperative agreements on r d entail higher levels of r d quality output and welfare than at the non cooperative equilibrium under well denned conditions on spillover rates this confirms in a new setting a well known outcome of models with cost reducing r d further cooperation in r d allows a larger number of firms to operate in the industry than in the non cooperative case via a reduction in prices a new source of social gains from cooperative research is identified

cooperative and noncooperative r d in duopoly with spillovers erratum in our article published in this review volume 78 no 5 december 1988 pp 1133 37 we have shown that in the presence of sufficient spillovers of the r d benefits duopolists cooperating in r d but not in the output spend more on r d than noncooperating firms at both stages and also produce more output closest to the socially optimal level a second symmetric result is that for small spillovers duopolists cooperating neither in r d nor in output spend more on r d and produce more output than cooperative firms however this result has been obscured by an obvious inequality inversion and other typos implying a modification in the conclusions indeed in fn 13 on p 1135 one should have that x x iff

r d spillovers and information exchange abstract we show that the spillover of r d can be endogenised in a sense that even without spillovers firms have an incentive to exchange the r d information after the investment costs are sunk

recontracting and stochastic stability in cooperative games abstract an evolutionary style model of recontracting is given which guarantees convergence to core allocations of an underlying cooperative game unlike its predecessors in the evolution learning literature this is achieved without assumptions of convexity of the characteristic function or a reliance on random errors the stochastic stability properties of the model are then examined and it is shown that stochastically stable states solve a simple and intuitive minimization problem which reduces to maximizing a rawlsian swf for a common class of utility functions in contrast to previous analyses the stochastically stable state is unique for a broad class of utility functions

networks of knowledge among unionized firms we develop a model of strategic networks in order to analyze how trade unions will affect the stability of r d networks through which knowledge is transmitted in an oligopolistic industry whenever firms settle wages the partially connected network is likely to emerge in the long run if and only if knowledge spillovers are large enough however when unions settle wages the complete network is the unique stable network in other words the stronger the union bargaining power is the more symmetric stable r d networks will be in terms of network efficiency the partially connected network when firms settle wages does not pareto dominate the complete network when unions settle wages and vice versa

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention