Returns to Scale and Strategic Regimes in Innovation Races

This paper develops a dynamic model in which the productivity of joint research governs strategic investment timing in innovation races. Departing from the standard assumption that discovery rates scale proportionally with the number of active firms, we allow research to exhibit decreasing or increasing returns, thereby endogenizing the aggressiveness of innovation competition. We show that returns to joint research determine whether innovation races exhibit preemption or coordination. When research efforts are substitutes, follower entry is unattractive, generating a first-mover advantage and a preemption equilibrium. When complementarities are sufficiently strong, the gains from early investment vanish and firms invest simultaneously. The model thus identifies a regime shift in innovation races: competition accelerates investment under decreasing returns but promotes coordinated entry under increasing returns. These findings highlight the research technology as a central determinant of market dynamics and provide a unified perspective on heterogeneous patterns of innovation.