This paper investigates rivalry in R&D expenditures for firms within the U. S. Automobile industry. It attempts to falsify Bain's paradigm that firms in that industry collude in price, and compete primarily in advertising and secondarily in R&D expenditures. We start with a single equation model of an earlier specification that falsified R&D rivalry for the auto industry, using a smaller sample size. The result also was insignificant, lending credence to Bain's idea that a more concerted effort is needed to ascertain R&D rivalry. To accommodate Bain's hypothesis, we embedded the R&D equation within a system of equations framework, where interactions between advertising, dividend, investment, and finance are co-determined. The system model gained efficiency through explicit specifications for technological and marketing constraints. The results corroborate Bain's hypotheses that R&D rivalry is present only when R&D expenditure is foiled with advertising and other financial ratios.
Get full access to this article
View all access options for this article.
References
1.
AbernathyWilliamJ., The Productivity Dilemma [Baltimore: John Hopkins University Press, 1978].
2.
BainJoeS., Industrial Organization[New York: John Wiley and Sons, Inc., 1959] Third printing, 1967].
3.
BainJoeS., Price Theory [N.Y.: John Wiley and Sons, Inc., 1952].
4.
BainJoeS., Barriers to New Competition [M.A.: Harvard University Press, 1956].
5.
BranderJ. A.SpencerB. J., Strategic Commitment with R&D: The Symmetric Case, The Bell Journal of Economics, Vol. 14, no. 1, Spring 1983, p. 226.
6.
BrownDonaldson, Pricing Policy in Relation to Management Control, Management and Administration, February, 1924.
7.
ClarkKimB., Product Development in the World Auto Industry, Brookings Papers on Economic Activity, Vol. 3, 1987, p. 730, and 732.
8.
CohenWesleyM.KlepperSteven, The Anatomy of Industry R&D Intensity Distributions, AER, September, 1992.
9.
CrandallRobenW., Regulating the Automobile[Washington: The Brookings Institution, 1986].
10.
DhrymesPhoebusJ., Econometrics (New York: Springer-Verlag, 1974].
11.
DhrymesPhoebusJ.KurzMordecia, Investment, Dividend, and External Finance Behavior of Firms, in FarberRobert (ed.), Determinants of Investment Behavior [New York: National Bureau of Economic Research, 1967].
12.
FriedlanderAnnF.WinstonCliffordWangKung, Cost, technology, and productivity in the U.S. automobile industry, The Bell Journal of EconomicsVol. 14, no. 1, Spring 1983.
13.
GrabowskiH.BaxterN. D.Rivalry in Industrial Research and Development, The Journal of Industrial Economics, Vol. XXI, no. 3, 1973.
14.
GrabowskiH., The Determinants of R and D in Three Industries, J. P. E., Vol. 76, 1968.
15.
GrabowskiHenryG.MuellerDennisC., Imitative Advertising in The Cigarette Industry, The Antitrust Bulletin. Vol. XVI (Summer 1971) pp. 257–292.
16.
GrabowskiH.MuellerD. C., “Non-Price Competition in the Cigarette Industry,” The Antitrust Bulletin, XIV [1969]. pp. 607–628.
17.
GrabowskiH.MuellerD. C., “Non-Price Competition in the Cigarette Industry: A Comment,”The Antitrust Bulletin, XIV [1970]. pp. 679–686.
18.
GuerardJohnVaughtH. T., The Handbook of Financial Modeling [Chicago: Probus Publishing Company, 1989.].
19.
JohnsonJ., Econometric Methods [New York: McGraw-Hill Book Company, Second Edition, 1972]. See similar discussions in the Third Edition, 1984, pp. 450–451.
20.
KatzHarryC., Industrial Relations and Productivity in the U. S. Automobile Industry, Brookings Papers on Economic Activity, Vol. 3, 1987, p. 687.
21.
LinkAlbertN., Productivity Growth, Environmental Regulation and the composition of R&D, The Bell Journal of Economics, Vol. 13, No. 2, Autumn 1982.
22.
LippmanStevenA.McCardleKevin, Dropout behavior in R&D races with learning, Rand Journal of Economics, Vol. 18, no. 2, 1987.
23.
ManneringFredWinstonClifford, A Dynamic Empirical Analysis of Household Vehicle Ownership and Utilization, Rand Journal of Economics, Vol, 16, no. 2, Summer 1985.
24.
MillerM.ModiglianiF., Dividend Policy, Growth, and the Valuation of Shares, Journal of Business, Vol. 34, 1961, pp. 411–433.
25.
RamrattanLallB., Rivalry in the U. S. Automobile Industry: An Advertising Approach, 1985. Unpublished Phd. Dissertation, The New School For Social Research.
26.
RamrattanLallB., The Impact of Imports on Prize Competition in the Automobile Industry, The American Economist, (Fall 1991).
27.
RamrattanLallB., Advertising Rivalry In The U. S. Automobile Industry: A Test of Bain's Hypothesis, The American Economist, (Fall 1994).
28.
SchererF. M., Research and Development Resource Allocation Under Rivalry; The Quarterly Journal of Economics, Vol. LXXXI, no. 3, August 1967.
29.
SchererF. M., Industrial Market Structure and Economic Performance, Second Edition [Chicago: Rand McNally College Publishing Company, 1980].
30.
SolowRobertM., Technical Change and the Aggregate Production Function, The Review of Economics and Statistics, Vol. 39, no. 3, August 1957, pp. 312–20.
31.
SwitzerLome, The Determinants of Industrial R&D: A Funds Flow Simultaneous Equation Approach, The Review of Economics and Statistics, Vol. 66, 1984.
