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Understanding perpetual R&D races

  • Yves Breitmoser

    ()

  • Jonathan Tan

    ()

  • Daniel Zizzo

    ()

This paper presents an experimental study of dynamic indefinite horizon R and D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects' strategies are far less sensitive. In most treatments the R&D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.

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File URL: http://hdl.handle.net/10.1007/s00199-009-0487-4
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 44 (2010)
Issue (Month): 3 (September)
Pages: 445-467

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Handle: RePEc:spr:joecth:v:44:y:2010:i:3:p:445-467
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