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Understanding Perpetual R&D Races

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Author Info
Yves Breitmoser () (Institute of Microeconomics, European University Viadrina)
Jonathan H.W. Tan () (Nottingham University Business School, University of Nottingham)
Daniel John Zizzo () (School of Economics, University of East Anglia)

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Abstract

This paper presents an experimental study of dynamic indefinite horizon R&D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects’ strategies are far less sensitive. In most treatments, the R&D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.

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Publisher Info
Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2008-04.

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Date of creation: Mar 2008
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Handle: RePEc:cdx:dpaper:2008-04

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Related research
Keywords: R&D race; innovation; dynamics; experiment.;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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