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Spillovers, Disclosure Lags, and Incentives to Innovate: Do Oligopolies Over-Invest in R&D?

  • Gianluca Femminis

    ()

    (Universita' Cattolica di Milano)

  • Gianmaria Martini

    (Universita' di Bergamo)

We develop a dynamic duopoly, in which firms have to take into account a technological externality, which reduces their innovation costs over time, and an inter-firm spillover, which lowers only the second comer’s R&D costs. This spillover exerts its effect after a disclosure lag. We identify three possible equilibria, which are classified according to the timing of R&D investments, as early, intermediate, and late. The intermediate equilibrium is subgame perfect for a wide parameter range. When the size of the innovation is large, it implies under-investment. Hence, even in the presence of a moderate degree of inter-firm spillover, the competitive equilibrium calls for public policies aimed at increasing the research activity. Focusing on minor innovations – the case in which according to earlier literature the market outcome implies sub-optimal investment levels – our results imply that policies aimed at stimulating R&D have to be less sizeable than suggested before.

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Article provided by Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore in its journal Rivista Internazionale di Scienze Sociali.

Volume (Year): 118 (2010)
Issue (Month): 1 ()
Pages: 47-76

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Handle: RePEc:vep:journl:y:2010:v:118:i:1:p:47-76
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