Dynamic Firm R&D Games: Manufacturing Costs and Reliability Paths
AbstractConsider a dynamic intra-industry trade model with two goods, two firms, and two countries in which product ¡°reliability¡± is determined by R&D paths. This paper focuses on how a change in competitive conditions in terms of manufacturing costs affects the firms¡¯ decision about optimal reliability. Briefly, the main result of the paper is that when the manufacturing costs are similar and closely track each other, a lower manufacturing cost prompts both firms to increase their R&D and product reliability. But when the manufacturing costs are not similar, either before or after the change, the results are quite different. A profit maximizing firm will sometimes take advantage of a reduction in its own manufacturing cost by actually doing less R&D¡ªand thus producing a less reliable product.
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Bibliographic InfoArticle provided by Better Advances Press, Canada in its journal Review of Economics & Finance.
Volume (Year): 3 (2013)
Issue (Month): (February)
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Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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