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Is the Market Biased Against Risky R&D?

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  • Tor Klette
  • David de Meza

Abstract

This article analyzes the riskiness of the R&D strategies chosen by firms engaged in a "winner-takes-all" patent race. In contradiction to Dasgupta and Stiglitz (1980) we show that, when the distribution of invention times is symmetric, the market equilibrium cannot be safer and may be riskier than is socially optimal. We identify the economic reason for the emergence but only if there are few competitors.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 17 (1986)
Issue (Month): 1 (Spring)
Pages: 133-139

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Handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:133-139

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Cited by:
  1. Wagman, Liad & Conitzer, Vincent, 2008. "Choosing Fair Lotteries to Defeat the Competition," MPRA Paper 10375, University Library of Munich, Germany.
  2. Andreas Fier & Dietmar Harhoff, 2002. "Die Evolution der bundesdeutschen Forschungs- und Technologiepolitik: Rückblick und Bestandsaufnahme," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 3(3), pages 279-301, 08.
  3. Bagwell, Kyle & Staiger, Robert W, 1992. "The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 795-816, November.
  4. Kyle Bagwell & Robert W. Staiger, 1990. "Risky R&D in Oligopolistic Product Markets," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 872, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Letina, Igor, 2013. "The road not taken: competition and the R&D portfolio," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79871, Verein für Socialpolitik / German Economic Association.
  6. Xing, Mingqing, 2014. "On the optimal choices of R&D risk in a market with network externalities," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 71-74.

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