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The Choices of R&D Risk in a Mixed Duopoly Market and Privatization Policy

  • Journal of Insurance and Finance
  • 2017, 28(3), pp.53-79
  • DOI : 10.23842/jif.2017.28.3.003
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : May 30, 2017
  • Accepted : August 16, 2017
  • Published : August 31, 2017

Lee Sang Ho 1

1전남대학교

Accredited

ABSTRACT

This paper investigates the choices of R&D risk in a mixed duopoly market, where public and private firms compete with differentiated products and R&D investments. We then examine the effects of privatization and provide policy-relevant implications. The main findings are as follows: first, both expected consumer surplus and expected social welfare increase more with the R&D risk of public firm. Thus, public firm chooses a higher R&D risk than that of private firm, and the difference of the choices of R&D risk between two firms increases as product substitutability increases. Second, private firm chooses a lower R&D risk than the social optimum in a mixed market. Therefore, government should not only encourage the private firm to choose a higher R&D risk, but increase the intensity of market competition. Third, privatization policy induces profit-oriented privatized firm to choose a lower R&D risk. Thus, government should provide R&D incentives to encourage the firms to choose higher R&D risks in a private market.

Citation status

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