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CRIEFF Discussion Paper Number 1003

Endogenous R&D Spillovers and Locational Choice

Claudio Piga (University of Nottingham), Joanna Poyago-Theotoky (University of St. Andrews)

 

Abstract

We present a three-stage game where two firms choose location, R&D and price, under the assumption that R&D spillovers depend on firms’ location. That is, the closer firms are to each other, the greater the benefit they receive from their rivals’ efforts in quality-enhancing R&D. We show that the distance between firms’ location increases with the degree of product differentiation. Further, we find that minimal quality differentiation always occurs. Finally, investment in R&D is positively associated with the degree of product differentiation.

JEL codes:  O30; L13; D43; R10
Keywords:  Endogenous spillovers; Quality-enhancing R&D; Location

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