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Spillovers and strategic commitment in R&D

Author

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  • Huizhong Liu

    (Zhongnan University of Economics and Law)

  • Jingwen Tian

    (University of Iowa)

Abstract

This paper considers a one-stage Cournot duopoly of R&D. We characterize the Nash equilibrium of the one-stage game and provide a comparison with the two-stage version of the same Cournot model of R&D/product market competition. We look at R&D expenditures, profits, output and welfare. Under perfect symmetry, the one-stage model always leads to higher profits when the spillover parameter is not equal to 1/2. Moreover, the one-stage model implies more R&D expenditure and higher welfare if and only if the spillover parameter is greater than 1/2. The insights are robust to an n -firm generalization, but the differences between the one-stage game and the two-stage game disappear as the market becomes perfectly competitive.

Suggested Citation

  • Huizhong Liu & Jingwen Tian, 2024. "Spillovers and strategic commitment in R&D," Theory and Decision, Springer, vol. 96(3), pages 477-501, May.
    • Handle: RePEc:kap:theord:v:96:y:2024:i:3:d:10.1007_s11238-023-09953-9
    DOI: 10.1007/s11238-023-09953-9
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    References listed on IDEAS

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    Keywords

    One-stage game; R&D; Spillovers;
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