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Dynamic Firm R&D Games: Manufacturing Costs and Reliability Paths

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  • Jannett Highfill

    ()
    (Department of Economics, Bradley University, USA)

  • Michael McAsey

    ()
    (Department of Mathematics, Bradley University, USA)

Abstract

Consider 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 Info

Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

Volume (Year): 3 (2013)
Issue (Month): (February)
Pages: 1-14

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Handle: RePEc:bap:journl:130101

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Related research

Keywords: Differential game; Innovation competition; Product reliability;

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References

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  1. Boris Lokshin & René Belderbos & Martin Carree, 2008. "The Productivity Effects of Internal and External R&D: Evidence from a Dynamic Panel Data Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 70(3), pages 399-413, 06.
  2. Jannett Highfill & Michael McAsey, 2010. "Firm Metrics with Continuous R&D, Quality Improvement, and Cournot Quantities," International Advances in Economic Research, Springer, Springer, vol. 16(3), pages 243-256, August.
  3. Cellini, Roberto & Lambertini, Luca, 2009. "Dynamic R&D with spillovers: Competition vs cooperation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(3), pages 568-582, March.
  4. Richard T. Gretz & Jannett Highfill & Robert C. Scott, 2009. "Strategic Research And Development Policy: Societal Objectives And The Corporate Welfare Argument," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 27(1), pages 28-45, 01.
  5. Jan Haaland & Hans Jarle Kind, 2006. "Cooperative and Non-Cooperative R&D Policy in an Economic Union," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 142(4), pages 720-745, December.
  6. Gregory Tassey, 2010. "Rationales and mechanisms for revitalizing US manufacturing R&D strategies," The Journal of Technology Transfer, Springer, Springer, vol. 35(3), pages 283-333, June.
  7. Maria Luisa Petit & Francesca Sanna-Randaccio & Roberta Sestini, 2012. "R&D and foreign direct investment with asymmetric spillovers," Economics of Innovation and New Technology, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(2), pages 125-150, October.
  8. Richard Gretz & Jannett Highfill & Robert Scott, 2012. "R&D subsidy games: a cost sharing approach vs. reward for performance," The Journal of Technology Transfer, Springer, Springer, vol. 37(4), pages 385-403, August.
  9. Femminis, Gianluca & Martini, Gianmaria, 2011. "Irreversible investment and R&D spillovers in a dynamic duopoly," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(7), pages 1061-1090, July.
  10. Jannett Highfill & Michael McAsey, 2010. "Dynamic Product Reliability Management for a Firm with a Complacent Competitor vs. a Lockstep Competitor," The Journal of Economics, Missouri Valley Economic Association, Missouri Valley Economic Association, vol. 36(1), pages 29-54.
  11. Sanna-Randaccio, Francesca, 2002. "The Impact of Foreign Direct Investment on Home and Host Countries with Endogenous R&D," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(2), pages 278-98, May.
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Cited by:
  1. Jannett Highfill & Michael McAsey, 2013. "Welfare Measures in Dynamic Firm R&D Games," International Advances in Economic Research, Springer, Springer, vol. 19(4), pages 439-449, November.

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