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Spillovers, disclosure lags, and incentives to innovate. Do oligopolies over-invest in R&D?

  • Gianluca Femminis

    ()

  • Gianmaria Martini

We develop a dynamic duopoly, where .rms have to take into account a technological externality, that reduces over time their innovation costs, and an inter-.rm spillover, that lowers only the second comer.s R&D cost. This spillover exerts its e¤ect after a disclosure lag. We identify three possible equilibria, which are classi.ed, according to the timing of R&D investments, as early, intermediate, and late. The intermedi- ate equilibrium is subgame perfect for a wide parameters range. When the innovation size is large, it implies that the duopolistic market equi- librium involves underinvestment. Hence, even in presence of a mod- erate degree of inter-.rms spillover, the competitive equilibrium calls for public policies aimed at increasing the research activity. When we focus on minor innovations .the case in which, according to the ear- lier literature, the market equilibrium underinvests .our results imply that the policies aimed at stimulating R&D have to be less sizeable than suggested before, despite the presence of an inter-.rm spillover.

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File URL: http://hdl.handle.net/10446/421
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Paper provided by Department of Economics and Technology Management, University of Bergamo in its series Working Papers with number 0706.

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Date of creation: 2007
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Handle: RePEc:brh:wpaper:0706
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  1. Flavio Delbono & Vincenzo Denicolo, 1988. "Incentives to Innovate in a Cournot Oligopoly," Working Papers 44, Dipartimento Scienze Economiche, Universita' di Bologna.
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  13. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
  14. Hoppe, Heidrun C, 2002. "The Timing of New Technology Adoption: Theoretical Models and Empirical Evidence," Manchester School, University of Manchester, vol. 70(1), pages 56-76, January.
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  16. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  17. Jim Y. Jin & Michael Troege, 2006. "R&D Competition And Endogenous Spillovers," Manchester School, University of Manchester, vol. 74(1), pages 40-51, 01.
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