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Strategic R&D with Knowledge Spillovers and Endogenous Time to Complete

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Author Info
Ruslan Lukach ()
Peter M. Kort ()
Joseph Plasmans ()

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Abstract

We present a model where firms make competitive decisions about the optimal duration (or time to build) of their R&D projects. Choosing its project’s duration, the firm can choose to become a leader or a follower, based on its R&D efficiency, the size of the R&D to be carried out and the degree of innovation, which this research will produce. It is shown that asymmetry in R&D efficiency between firms is an important factor determining feasibility of the preemption and attrition scenarios in competitive R&D with time to build. Scenarios of attrition and preemption games are most likely to occur when competitors have similar R&D efficiencies. In case of largely asymmetric firms the games of attrition and preemption are very unlikely, thus the R&D duration choices of firms are determined by the actual trade-off between the benefits of earlier innovation and the costs of faster R&D project completion.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 2027.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2027

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Related research
Keywords: R&D investment competition preemption attrition

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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  1. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August. [Downloadable!] (restricted)
    Other versions:
  2. Dutta, Prajit K., 1997. "Optimal management of an R&D budget," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 575-602. [Downloadable!] (restricted)
  3. Pacheco-de-Almeida, Goncalo & Zemsky, Peter, 2003. " The Effect of Time-to-Build on Strategic Investment under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 166-82, Spring.
  4. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December. [Downloadable!] (restricted)
  5. Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March. [Downloadable!] (restricted)
  6. Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(3), pages 419-433, 09. [Downloadable!] (restricted)
  7. Dutta, Prajit K & Lach, Saul & Rustichini, Aldo, 1995. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(4), pages 563-89, Winter.
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  8. Johannes Van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 167-198, January.
  9. Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February. [Downloadable!] (restricted)
  10. Petit, Maria Luisa & Tolwinski, Boleslaw, 1999. "R&D cooperation or competition?," European Economic Review, Elsevier, vol. 43(1), pages 185-208, January. [Downloadable!] (restricted)
  11. Gene M. Grossman & Carl Shapiro, 1986. "Optimal Dynamic R&D Programs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 581-593, Winter. [Downloadable!] (restricted)
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