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Innovative activity and sunk cost

  • Kaplan, Todd R.
  • Luski, Israel
  • Wettstein, David

We introduce time-dependent rewards into a general framework for analyzing innovative activity among firms with sunk costs of R&D. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under conditions there is qualitatively different equilibrium behavior.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 21 (2003)
Issue (Month): 8 (October)
Pages: 1111-1133

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Handle: RePEc:eee:indorg:v:21:y:2003:i:8:p:1111-1133
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  7. Vickers, John S, 1986. "The Evolution of Market Structure When There Is a Sequence of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 1-12, September.
  8. Reinganum, Jennifer R., 1982. "Uncertain Innovation and the Persistence of Monopoly," Working Papers 431, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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  15. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
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  17. Martin, Stephen, 2001. "Industrial Organization: A European Perspective," OUP Catalogue, Oxford University Press, number 9780198297284, June.
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