Abstract We develop a two-stage oligopoly model of price competition in markets with both informed and uninformed (captive) consumers. The model introduces a novel mechanism through which interfirm collaborative R&D influences market outcomes. In particular, the second stage of the game where firms set prices is a supermodular game allowing us to analyze strategic complementarities in pricing behavior. We show that this type of market friction creates a new channel of influence for collaborative R&D. Our analysis reveals how consumer heterogeneity and cost heterogeneity jointly shape the incentives for collaboration among firms, offering new insights into the design of efficient innovation networks in oligopolistic markets.
Billand et al. (Mon,) studied this question.