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Understanding Perpetual R and D Races

Author

Listed:
  • Yves Breitmoser

    (Institute of Microeconomics, European University Viadrina)

  • Jonathan H. W. Tan

    (Nottingham University Business School, University of Nottingham)

  • Daniel John Zizzo

    (Centre for Competition Policy and School of Economics, University of East Anglia)

Abstract

This paper presents an experimental study of dynamic indefinite horizon R and D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R and D. The subjects' strategies are far less sensitive. In most treatments, the R and D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.

Suggested Citation

  • Yves Breitmoser & Jonathan H. W. Tan & Daniel John Zizzo, 2008. "Understanding Perpetual R and D Races," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2008-22, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2008_22
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    Citations

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    Cited by:

    1. Philippe Aghion & Stefan Bechtold & Lea Cassar & Holger Herz, 2018. "The Causal Effects of Competition on Innovation: Experimental Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 162-195.
    2. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies � A Laboratory Experiment," SOI - Working Papers 0905, Socioeconomic Institute - University of Zurich.
    3. Eibelshäuser, Steffen & Poensgen, David, 2019. "Markov Quantal Response Equilibrium and a Homotopy Method for Computing and Selecting Markov Perfect Equilibria of Dynamic Stochastic Games," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203603, Verein für Socialpolitik / German Economic Association.
    4. Mathias Erlei & Anne-Kathrin Dimmig, 2012. "Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty," TUC Working Papers in Economics 0008, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).

    More about this item

    Keywords

    R and D race; innovation; dynamics; experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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