research and development R & D

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research and development (R & D or R and D)

the commitment of resources by a firm to scientific research (both ‘pure’ and ‘applied’) and the refinement and modification of research ideas and prototypes aimed at the ultimate development of commercially viable processes and products. Thus, R & D is concerned both with INVENTION (the act of discovering new methods and techniques of manufacture and new products) and INNOVATION (the task of bringing these inventions to the market place).

Although invention is often an ‘inspirational’ act that can be undertaken with limited facilities, innovation is very resource-intensive. The substantial capital outlays required to pursue development work, coupled with a high risk of failure to come up with a marketable product, tend to favour the larger firm, which is able to finance R & D out of current profits and also to spread risks by undertaking a number of research projects. Thus, it might be argued that MONOPOLY or OLIGOPOLY market structures tend to be more conducive to R & D since they are associated with the generation of ABOVE-NORMAL PROFITS. However, although a monopolist has the resources to fund R & D, it may not have the incentive to do so, since its present market position is secure. By contrast, oligopolists have both the resources and the incentive to undertake R & D, since the ability to develop new processes that lower supply costs and introduce innovative NEW PRODUCTS is often a critical factor in establishing COMPETITIVE ADVANTAGE over rival suppliers.

R & D can also be an important factor in promoting a higher rate of ECONOMIC GROWTH, and in order to foster TECHNOLOGICAL PROGRESSIVENESS, many countries grant temporary PATENT rights to reward inventors. See PRODUCT PERFORMANCE, PRODUCT LIFE CYCLE.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
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