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Innovative Activity and Sunk Cost

Author

Listed:
  • Kaplan, T.R.
  • Luski, I.
  • Wettstein, D.

Abstract

We analyze a patent race where the first innovator receives a time-dependent reward while all firms incur costs. When firms are identical, there is a unique, symmetric, mixed-strategy equilibrium that yields zero expected profits for all firms. Furthermore, the expected innovation time is an increasing function of the number of firms and a decreasing function of the size of the reward. When one firm has a higher reward than another, it is more likely to win. Although similar to an all-pay auction, our approach may yield both similar and qualitatively different behavior.

Suggested Citation

  • Kaplan, T.R. & Luski, I. & Wettstein, D., 2000. "Innovative Activity and Sunk Cost," Papers 2000-6, Tel Aviv.
    • Handle: RePEc:fth:teavfo:2000-6
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    INNOVATIONS ; PATENTS ; COSTS;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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