A firm that reduces its research and development spending will expect competitor firms to reduce research and development spending as competition is reduced.

Question

Quizplus · Accepted Answer

If a firm reduces its research and development spending, it may actually encourage competitor firms to increase their own research and development spending in order to gain a competitive advantage. This is because the firm that reduced its spending may become less innovative and less able to keep up with new developments in the industry. Therefore, the overall effect on competition cannot be predicted just by looking at the action of one firm.

A Firm That Reduces Its Research and Development Spending Will