Optimal R&D Investment Strategies with Quantity Competition under the Threat of Superior Entry
AbstractThis paper studies R&D investment decisions of a firm facing the threat of new technology entry and subject to technical uncertainty. We distinguish four scenarios: inevitable entry, entry deterrence, entry blockade, and non-credible entry threat. The entry threat stimulates the incumbent to innovate in case entry prevention is possible, but discourages R&D if entry is inevitable. In the case of entry deterrence the incumbent successfully prevents entry by innovating. Greater technical uncertainty stimulates starting R&D and can result in implementation of more expensive research projects. The welfare analysis shows that the relation between welfare and entry cost and between welfare and uncertainty is non-monotonic.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1385.
Date of creation: 2005
Date of revision:
investment under uncertainty; real options; R&D; competition;
Other versions of this item:
- Lukach, R. & Kort, P.M. & Plasmans, J.E.J., 2005. "Optimal R&D Investment Strategies with Quantity Competition under the Threat of Superior Entry," Open Access publications from Tilburg University urn:nbn:nl:ui:12-178526, Tilburg University.
- NEP-ALL-2005-02-06 (All new papers)
- NEP-COM-2005-02-06 (Industrial Competition)
- NEP-ENT-2005-02-06 (Entrepreneurship)
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