R&D Investments with Competitive Interactions
AbstractIn this article we develop a model to analyze patent-protected R&D investment projects when there is (imperfect) competition in the development and marketing of the resulting product. The competitive interactions that occur substantially complicate the solution of the problem since the decision maker has to take into account not only the factors that affect her/his own decisions, but also the factors that affect the decisions of the other investors. The real options framework utilized to deal with investments under uncertainty is extended to incorporate the game theoretic concepts required to deal with these interactions. Implementation of the model shows that competition in R&D, in general, not only increases production and reduces prices, but also shortens the time of developing the product and increases the probability of a successful development. These benefits to society are countered by increased total investment costs in R&D and lower aggregate value of the R&D investment projects.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10258.
Date of creation: Feb 2004
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Find related papers by JEL classification:
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-01 (All new papers)
- NEP-CFN-2004-02-01 (Corporate Finance)
- NEP-INO-2004-02-01 (Innovation)
- NEP-TID-2004-02-01 (Technology & Industrial Dynamics)
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