Strategic Delay in a Real Optimna Model of R&D Competition
AbstractThis paper considers irreversible investment in competing research projects with uncertain returns under a winner-takes-all patent system. Uncertainty takes two distinct forms: the technological success of the project is probabilistic, while the economic value of the patent to be won evolves stochastically over time. According to the theory of real options uncertainty generates an option value of delay, but with two competing firms the fear of preemption would appear to undermine this approach. In non-cooperative equilibrium two patterns of investment emerge depending on parameter values.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 576.
Length: 39 pages
Date of creation: 2000
Date of revision:
INVESTMENTS ; RESEARCH AND DEVELOPMENT ; COMPETITION;
Other versions of this item:
- 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.
- 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.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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