English, Article edition: STRATEGIC DEBT AND RJV COMPETITION * HO-CHYUAN CHEN

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  • article
Language
  • English

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Title
  • STRATEGIC DEBT AND RJV COMPETITION *
Author
  • HO-CHYUAN CHEN
Physical Description
  • article
Notes
  • Firms first choose their debt level, next form an RJV and choose R&​D investment, and then choose output in Cornot competition. Through the use of debt, a firm commits an aggressive stance, a higher output level, and higher R&​D investment, whereby the latter helps solve the free-riding problem that usually exists in R&​D studies. However, a firm in an unleveraged industry gains the highest profit, while a leveraged firm in an asymmetric industry (which achieves the highest profit in Brander and Lewis (1988)) gains the lowest profit. As a result, both firms using debt and both firms not using debt are the two equilibria, and the latter survives as a focal outcome. This is in sharp contrast to Brander and Lewis who find that both firms using debt is a prisoner's dilemma outcome. Copyright Blackwell Publishing Ltd/​ University of Adelaide and Flinders University 2005..
  • RePEc:bla:ausecp:v:44:y:2005:i:2:p:149-161
Language
  • English
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