Innovation and Market Structure in Presence of Spillover Effects

The paper proposes a theory of innovation-as the fruit of science parks-and market structure. The model\nincorporates n firms with horizontal spillovers all interacting within a hypothetical industry. In a two stage sequential game framework, four types of cooperation are studied: non-cooperation in both stages, cooperation in both stages, cooperation in R&D stage and non-cooperation in production stage and\nsimultaneous cooperation and non-cooperation in the R&D stage. The effect of competition on total innovation investment varies among all four cases and mostly depends on the extent of competition, spillover effects and marginal production costs.