The possible trade-off between static and dynamic efficiency remains a subject of debate. One reason for a consensus view not to have surfaced is the ambiguous relation between competition intensity on product markets and the incentives to invest in Research and Development (R&D). The another one is the wide array of models that is used to analyze the problem. In this paper, we also present a dynamic model of R&D. The distinguishing feature of our approach is that we provide a truly global analysis for a dynamic model of R&D, which allows us to consider the R&D process prior to the production stage. Contrary to the received literature, we do not have to assume that initial marginal costs are below the choke price. Our global analysis yields four distinct scenario’s, depending on initial marginal cost to be below or above the choke price, and whether or not the R&D process leads to the steady state; if not, R&D efforts are progressively scaled down, implying that the technology will die out over time while production is eventually terminated. We then compare two different possibilities across these scenario’s: firms form either a full cartel or they collude in R&D only. This yields two results. First, the set of initial marginal costs above the choke price that will induce a stable equilibrium, is larger if firms also collude in the product market. Second, the set of initial marginal costs that induces firms to abandon the technology in time, is larger if firms cannot collude in the product market. We also discuss the consequences of these results for the rigour with which antitrust policies should be implemented.
Please be advised that this  PhD lunch will be held on a  Friday!!!!