One reason that economically rational firms might produce “too much” R&D for their shareholders: competition! In many industries, if you stop innovating your company will fall behind quickly, and your customers will go elsewhere.
Happily this Red Queen’s Race has large positive externalities, and so coordinating to reduce such investments is generally illegal (‘restraint of trade’).
One reason that economically rational firms might produce “too much” R&D for their shareholders: competition! In many industries, if you stop innovating your company will fall behind quickly, and your customers will go elsewhere.
Happily this Red Queen’s Race has large positive externalities, and so coordinating to reduce such investments is generally illegal (‘restraint of trade’).
Explains the existence of R&D, not a “too much” of it