R&D: Competition, Risk, and Performance

Anticipated postinnovation collusion encourages R&D effort, but realized collusion later yields deadweight losses. In balancing this tradeoff, Bertrand industries sometimes outperform Cournot; sometimes they do not. Both usually outperform perfectly collusive industries. The optimal level of collusion is often less collusive than Cournot duopoly. In Bertrand industries, too few firms do R&D. The same goes for long-shot or high-cost projects in all industries. However, in perfectly collusive industries, too many firms invest when a project has medium to high chances of success. Investment by Cournot industries is often close to optimal.