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Dynamic Firm R&D Games: Manufacturing Costs and Reliability Paths

Author

Listed:
  • Jannett Highfill

    () (Department of Economics, Bradley University, USA)

  • Michael McAsey

    () (Department of Mathematics, Bradley University, USA)

Abstract

Consider a dynamic intra-industry trade model with two goods, two firms, and two countries in which product ¡°reliability¡± is determined by R&D paths. This paper focuses on how a change in competitive conditions in terms of manufacturing costs affects the firms¡¯ decision about optimal reliability. Briefly, the main result of the paper is that when the manufacturing costs are similar and closely track each other, a lower manufacturing cost prompts both firms to increase their R&D and product reliability. But when the manufacturing costs are not similar, either before or after the change, the results are quite different. A profit maximizing firm will sometimes take advantage of a reduction in its own manufacturing cost by actually doing less R&D¡ªand thus producing a less reliable product.

Suggested Citation

  • Jannett Highfill & Michael McAsey, 2013. "Dynamic Firm R&D Games: Manufacturing Costs and Reliability Paths," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 1-14, February.
  • Handle: RePEc:bap:journl:130101
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    File URL: http://www.bapress.ca/ref/v3-1/2013101.pdf
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    References listed on IDEAS

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    1. repec:kap:iaecre:v:16:y:2010:i:3:p:243-256 is not listed on IDEAS
    2. Richard T. Gretz & Jannett Highfill & Robert C. Scott, 2009. "Strategic Research And Development Policy: Societal Objectives And The Corporate Welfare Argument," Contemporary Economic Policy, Western Economic Association International, vol. 27(1), pages 28-45, January.
    3. Jannett Highfill & Michael McAsey, 2010. "Firm Metrics with Continuous R&D, Quality Improvement, and Cournot Quantities," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(3), pages 243-256, August.
    4. Cellini, Roberto & Lambertini, Luca, 2009. "Dynamic R&D with spillovers: Competition vs cooperation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 568-582, March.
    5. Boris Lokshin & René Belderbos & Martin Carree, 2008. "The Productivity Effects of Internal and External R&D: Evidence from a Dynamic Panel Data Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 399-413, June.
    6. Jan Haaland & Hans Jarle Kind, 2006. "Cooperative and Non-Cooperative R&D Policy in an Economic Union," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(4), pages 720-745, December.
    7. Gregory Tassey, 2010. "Rationales and mechanisms for revitalizing US manufacturing R&D strategies," The Journal of Technology Transfer, Springer, vol. 35(3), pages 283-333, June.
    8. Femminis, Gianluca & Martini, Gianmaria, 2011. "Irreversible investment and R&D spillovers in a dynamic duopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1061-1090, July.
    9. Jannett Highfill & Michael McAsey, 2010. "Dynamic Product Reliability Management for a Firm with a Complacent Competitor vs. a Lockstep Competitor," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 36(1), pages 29-54.
    10. Sanna-Randaccio, Francesca, 2002. "The Impact of Foreign Direct Investment on Home and Host Countries with Endogenous R&D," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 278-298, May.
    11. Maria Luisa Petit & Francesca Sanna-Randaccio & Roberta Sestini, 2012. "R&D and foreign direct investment with asymmetric spillovers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(2), pages 125-150, October.
    12. Richard Gretz & Jannett Highfill & Robert Scott, 2012. "R&D subsidy games: a cost sharing approach vs. reward for performance," The Journal of Technology Transfer, Springer, vol. 37(4), pages 385-403, August.
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    Cited by:

    1. Jannett Highfill & Michael McAsey, 2013. "Welfare Measures in Dynamic Firm R&D Games," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(4), pages 439-449, November.
    2. repec:kap:iaecre:v:19:y:2013:i:4:p:439-449 is not listed on IDEAS

    More about this item

    Keywords

    Differential game; Innovation competition; Product reliability;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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