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Research and Development with Asymmetric Firm Sizes


  • Richard J. Rosen


This article presents a theoretical model of research and development (R&D) competition among firms. The goal of the model is to simultaneously explain two empirical observations pertaining to the persistence of dominant firms: small firms make a disproportionate share of major innovations, while large firms tend to spend more (in absolute terms) on R&D than small firms do. In the model here, firms choose investment levels and R&D project riskiness. In equilibrium, a large firm invests more than a smaller firm but, by choosing safer R&D projects, makes fewer major innovations.

Suggested Citation

  • Richard J. Rosen, 1991. "Research and Development with Asymmetric Firm Sizes," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 411-429, Autumn.
  • Handle: RePEc:rje:randje:v:22:y:1991:i:autumn:p:411-429

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    References listed on IDEAS

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    2. Reichelstein, Stefan, 1984. "Smooth versus discontinuous mechanisms," Economics Letters, Elsevier, vol. 16(3-4), pages 239-242.
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