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Spillovers, disclosure lags, and incentives to innovate. Do oligopolies over-invest in R&D?

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  • Gianluca Femminis

    ()
    (DISCE, Università Cattolica)

  • Gianmaria Martini

    ()
    (Università di Bergamo)

Abstract

We develop a dynamic duopoly, where firms have to take into account a technological externality, that reduces over time their innovation costs, and an inter-firm spillover, that lowers only the second comer's R&D cost. This spillover exerts its effect after a disclosure lag. We identify three possible equilibria, which are classified, according to the timing of R&D investments, as early, intermediate, and late. The intermediate equilibrium is subgame perfect for a wide parameters range. When the innovation size is large, it implies that the duopolistic market equilibrium involves underinvestment. Hence, even in presence of a moderate degree of inter-firms spillover, the competitive equilibrium calls for public policies aimed at increasing the research activity. When we focus on minor innovations -- the case in which, according to the earlier literature, the market equilibrium underinvests -- our results imply that the policies aimed at stimulating R&D have to be less sizeable than suggested before, despite the presence of an inter-firm spillover.

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File URL: http://www.unicatt.it/Istituti/TeoriaEconomica/Quaderni/Quaderno_44.pdf
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Bibliographic Info

Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi with number itemq0744.

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Length: nn pages 39
Date of creation: Jun 2007
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Handle: RePEc:ctc:serie6:itemq0744

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Web page: http://www.unicatt.it/Istituti/TeoriaEconomica
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Keywords: knowledge spillover; dynamic oligopoly;

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References

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  1. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
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  7. Beath, John & Katsoulacos, Yannis & Ulph, David, 1989. "Strategic R&D Policy," Economic Journal, Royal Economic Society, vol. 99(395), pages 74-83, Supplemen.
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Cited by:
  1. Enrico Bellino, 2012. "Pasinetti on Ricardo," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1258, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Stefano Colombo & Luigi Filippini, 2012. "Patent licensing with Bertrand competitors," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1262, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  3. Stefano Colombo & Luigi Filippini, 2012. "Product innovation and logistic optimization in a novel urban-type model," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1259, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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