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A Test of Perpetual R&D Races

  • Yves Breitmoser

    (Institute of Microeconomics, European University Viadrina)

  • Jonathan H. W. Tan

    (Institute of Microeconomics, European University Viadrina)

  • Daniel John Zizzo

    ()

    (Centre for Competition Policy, University of East Anglia)

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://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP06-11.pdf
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Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 06-11.

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Length: 34 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:ccp:wpaper:wp06-11
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