Innovative activity and sunk cost
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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