R&D-induced industry polarization and shake-outs

►The standard symmetric two-stage game of R&D and Cournot competition with R&D characterized by mildly (instead of strongly) decreasing returns to scale has only extreme equilibrium R&D for some parameter values. ►These asymmetric equilibria lead to polar duopoly or possibly to monopoly, with one firm endogenously exiting. ►This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. ►Second-best welfare solution may reflect too little or too much R&D, depending on parameters.