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Dynamic R&D Competition with Learning

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  • David A. Malueg
  • Shunichi O. Tsutsui

Abstract

To account for the possibility that firms are unsure about the ease of innovation, we formulate a differential game of R&D competition with an unknown hazard rate. We show, as time passes with success, firms become more pessimistic about eventual innovation, reducing their R&D investment and possibly exiting the race. An increase in the number of competing firms tends to increase firms' R&D intensities, for given beliefs, but because beliefs evolve at different rates depending on the number of firms in the race, time paths of R&D investment intensity are not unambiguously ordered with respect to the number of competing firms.

Suggested Citation

  • David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter.
  • Handle: RePEc:rje:randje:v:28:y:1997:i:winter:p:751-772
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    Cited by:

    1. Scotchmer, Suzanne & Erkal, Nisvan, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it," Department of Economics, Working Paper Series qt1295k6gg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.
    3. Wagner, Peter A., 2018. "Who goes first? Strategic delay under information asymmetry," Theoretical Economics, Econometric Society, vol. 13(1), January.
    4. Fershtman, Chaim & Markovich, Sarit, 2010. "Patents, imitation and licensing in an asymmetric dynamic R&D race," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 113-126, March.
    5. Rosenberg, Dinah & Salomon, Antoine & Vieille, Nicolas, 2013. "On games of strategic experimentation," Games and Economic Behavior, Elsevier, vol. 82(C), pages 31-51.
    6. Forand, Jean Guillaume, 2015. "Keeping your options open," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 47-68.
    7. Cary Deck & Erik O. Kimbrough, 2016. "Experimenting with Contests for Experimentation," Discussion Papers dp16-08, Department of Economics, Simon Fraser University.
    8. Moscarini, Giuseppe & Squintani, Francesco, 2010. "Competitive experimentation with private information: The survivor's curse," Journal of Economic Theory, Elsevier, vol. 145(2), pages 639-660, March.
    9. Thijssen, Jacco J. J. & Huisman, Kuno J. M. & Kort, Peter M., 2004. "The effect of information streams on capital budgeting decisions," European Journal of Operational Research, Elsevier, vol. 157(3), pages 759-774, September.
    10. Wagner, Peter, 2015. "Who goes first? Strategic Delay and Learning by Waiting," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 500, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    11. Jing-Yuan, Chiou, 2012. "In the shadow of giants," MPRA Paper 37033, University Library of Munich, Germany.
    12. Kovac, Eugen, 2014. "Venture Capital Financing of Innovation Races," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100302, Verein für Socialpolitik / German Economic Association.
    13. Thijssen, J.J.J., 2003. "Investment under uncertainty, market evolution and coalition spillovers in a game theoretic perspective," Other publications TiSEM 672073a6-492e-4621-8d4a-0, Tilburg University, School of Economics and Management.
    14. Martin W. Cripps & Godfrey Keller & Sven Rady, 2002. "Strategic Experimentation: The Case of Poisson Bandits," CESifo Working Paper Series 737, CESifo Group Munich.
    15. Chang, Shun-Chiao & Wu, Ho-Mou, 2006. "Production experiences and market structure in R&D competition," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 163-183, February.

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