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