R&D Investments with Competitive Interactions
AbstractIn this article we develop a model to analyze patent-protected R&D investment projects when there is (imperfect) competition in the development and marketing of the resulting product. The competitive interactions that occur substantially complicate the solution of the problem since the decision maker has to take into account not only the factors that affect her&his own decisions, but also the factors that affect the decisions of the other investors. The real options framework utilized to deal with investments under uncertainty is extended to incorporate the game theoretic concepts required to deal with these interactions. Implementation of the model shows that competition in R&D, in general, not only increases production and reduces prices, but also shortens the time of developing the product and increases the probability of a successful development. These benefits to society are countered by increased total investment costs in R&D and lower aggregate value of the R&D investment projects. Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Springer in its journal Review of Finance.
Volume (Year): 8 (2004)
Issue (Month): 3 ()
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Web page: http://springerlink.metapress.com/link.asp?id=111870
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- Navas, J. & Kort, P.M., 2005.
"Time to Complete and Research Joint Ventures: A Differential Game Approach,"
2005-29, Tilburg University, Center for Economic Research.
- Navas, Jorge & Kort, Peter M., 2007. "Time to complete and research joint ventures: A differential game approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1672-1696, May.
- Kort, P.M. & Navas, J., 2007. "Time to complete and research joint ventures: A differential game approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194290, Tilburg University.
- Eduardo Schwartz, 2013. "The Real Options Approach to Valuation: Challenges and Opportunities," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 50(2), pages 163-177, November.
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