Intro rivalry vi compute the level of social welfare

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Unformatted text preview: assuming that only one …rm engages in R&D. Social welfare when only one …rm engages in R&D is W (1) = Lecture 13: Patent race, 1 150 3 40 = $10 Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry (vi) Compute the level of social welfare assuming that two …rms engage in R&D. Social welfare when exactly two …rms engage in R&D is 2 3 6 6 W (2) = 61 4 Lecture 13: Patent race, | 2 3 {z 2 3 } prob. both don’ discover t 7 7 7 150 5 Econ483: Econ of Innovation & Technology, 40 Evangelia Chalioti 40 = 10 < 10 3 c A ll rights reserved. Intro Rivalry (vii) Compute the level of social welfare assuming that all three …rms engage in R&D. Social welfare when exactly three …rms engage in R&D is 2 3 6 6 W (3) = 61 4 Lecture 13: Patent race, | 2 3 2 3 {z 2 3 } prob. all 3 don’ discover t 7 7 7 150 5 Econ483: Econ of Innovation & Technology, 40 40 Evangelia Chalioti 40 = 130 < 10 9 c A ll rights reserved. Intro Rivalry (viii) What is the socially optimal number of …rms that should engage in R&D? The above computations reveal that from a social welfare point of view, only one …rm should be engaged in R&D. However, in equilibrium, two …rms will engage in R&D. Thus, from a social welfare view point, this patent race leads to excessive R&D. Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Required readings Church, J. and R. Ware, Industrial Organization: A Strategic Approach. Subsection 18.2.2, pages 582-585 Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved....
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