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Understanding Perpetual R&D Races

  • Yves Breitmoser

    ()

    (Institute of Microeconomics, European University Viadrina)

  • Jonathan H.W. Tan

    ()

    (Nottingham University Business School, University of Nottingham)

  • Daniel John Zizzo

    ()

    (School of Economics, University of East Anglia)

This paper presents an experimental study of dynamic indefinite horizon R&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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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2008-04.

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Date of creation: Mar 2008
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Handle: RePEc:cdx:dpaper:2008-04
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  2. Yves Breitmoser & Jonathan H. W. Tan & Daniel John Zizzo, 2006. "A Test of Perpetual R&D Races," Working Papers 06-11, Centre for Competition Policy, University of East Anglia.
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