R+D is, in general, expensive and the returns are very uncertain. One purpose of R+D is to lower production costs. However, knowledge is very difficult to contain, despite the best patent laws. So, it is difficult for a firm to capture the total economic benefits from R+D. That is, a firm could spend mucho bucks on R+D, make a big discovery, and see the knowledge of their discovery picked up by other firms.
To encourage R+D in competitive industries, one could have even stronger patent laws. Or, firms could get together and pool resources (and risks)
If all assumptions of perfect competition hold, why would firms in such an industry have a little incentive to carry out technological change or much research and development? What conditions would encourage research and development in competitive industries?
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