Dynamic R & D Competition Under "Hazard Rate" Uncertainty
AbstractA model of dynamic R&D behavior is presented in which participants in the race have imperfect information about the (true) "hazard rate" of the R&D process. In this model, a firm will be ambivalent about a rival firm's success at an intermediate stage. On the one hand, the probability of winning is reduced, since a rival firm is ahead and the technological gap is larger. This effect is always negative. On the other hand, the discovery could be a signal that the project is not as hard after all ("If you can do that, why not me?"), which could shorten the expected time needed for the discovery. This is a positive effect of a rival firm's success, one that is not present in existing models and hence has been ignored up to now. According to the relative magnitude of these two opposing effects, a much richer description of real-world R&D behavior is obtained. This article also provides a potential explanation of the strategic practice of innovation shelving.
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Bibliographic InfoPaper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1991_10.
Length: 25 pages
Date of creation: 1991
Date of revision:
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Other versions of this item:
- Jay P. Choi, 1991. "Dynamic R&D Competition under "Hazard Rate" Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 596-610, Winter.
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- Scotchmer, Suzanne & Erkal, Nisvan, 2009.
"Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it,"
Department of Economics, Working Paper Series
qt1295k6gg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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- Weeds, H., 2000.
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The Warwick Economics Research Paper Series (TWERPS)
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- Weeds, Helen, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 729-47, July.
- Helen Weeds, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 729-747.
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