Absorptive capacity and R&D strategy in mixed duopoly with labor-managed and profit-maximizing firms

In a mixed duopoly with a labor-managed firm and a profit-maximizing firm coexisting, this paper explores the effect of technology absorptive capacity on firms' output decision, R&D investment decision and social welfare. Firstly, we develop a two-stage R&D game model on the basis of cost-reducing R&D with spillover and absorptive capacity. Secondly, we explore the strategic interactions of output, R&D investment and social welfare respectively in the mixed duopoly with a labor-managed and a profit-maximizing firms. Finally we analyze the effects of absorptive capacity on output decision, strategic investment decision and social welfare respectively. The research suggests that labor-managed firms employ less workers and produce less outputs while they invest more in R&D than that of profit-maximizing firms. Whether the effect of absorptive capacity increases R&D investment of labor-managed firms or not depends on the returns to scale. However, it bears no relationship to the returns to scale of the profit-maximizing firm.