What is Information (One Bit Of)

This chapter aims to contribute to the better understanding of R&D by scholars and practitioners. It includes a first section where the concept of innovation is defined and its public good nature and cumulative dimension are analysed. Next, the incentives that firms have to undertake R&D to attain a competitive edge upon rivals are considered. This entails the consideration of both ex ante and ex post incentives to undertake R&D. Since innovation is costly and derives important external effects, cooperation in R&D activities is prominent in several industries where firms enter into research joint ventures, or form research networks. The effect of cooperation is that, under some circumstances, the industry performance is better as compared to full competition. The final section addresses the complementarities and conflicts among the different microeconomic policies (trade, industrial and competition policy) faced by governments when considering the support of R&D activities.