First mover advantage in a dynamic duopoly with spillover
We present a dynamic duopoly model of technical innovation where R&D costs decrease exogenously with time, and inter-firm knowledge spillover lowers the second comer's R&D cost. The spillover effect only becomes available after a disclosure lag. These features allow us to identify a new type of equilibrium: the leader delays investment until the R&D cost is low enough that the follower finds it optimal to invest as soon as he can benefit from the spillover. This equilibrium is subgame perfect over a wide range of parameters, and raises several interesting implications. First, in our new equilibrium the time delay between the two R&D investments is realistically short. Second, while the presence of a spillover favors the second mover, this benefit is not enough to rule out a first mover advantage. Indeed, the first mover advantage survives whenever technical progress is sufficiently fast and the disclosure lag is relatively long. Third, in case of a major innovation our equilibrium implies under--investment, which requires a substantial public intervention in favour of the investment activity.
|Date of creation:||Jul 2009|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.unicatt.it/Istituti/TeoriaEconomica|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
- d'Aspremont, Claude & Jacquemin, Alexis, 1990.
"Cooperative and Noncooperative R&D in Duopoly with Spillovers: Erratum,"
American Economic Review,
American Economic Association, vol. 80(3), pages 641-42, June.
- d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers: Erratum," CORE Discussion Papers RP -892, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, 09.
- Michael H. Riordan, 1992.
"Regulation and Preemptive Technology Adoption,"
RAND Journal of Economics,
The RAND Corporation, vol. 23(3), pages 334-349, Autumn.
- Dutta, Prajit K & Lach, Saul & Rustichini, Aldo, 1995.
"Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 4(4), pages 563-89, Winter.
- Prajit K. Dutta & Saul Lach & Aldo Rustichini, 1993. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," NBER Working Papers 4473, National Bureau of Economic Research, Inc.
- Delbono, Flavio & Denicolo, Vincenzo, 1991.
"Incentives to Innovate in a Cournot Oligopoly,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(3), pages 951-61, August.
- Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February.
- Cummins, Jason G & Violante, Giovanni L, 2002.
"Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences,"
CEPR Discussion Papers
3584, C.E.P.R. Discussion Papers.
- Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 243-284, April.
- Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-specific technical change in the US (1947-2000): measurement and macroeconomics consequences," Finance and Economics Discussion Series 2002-10, Board of Governors of the Federal Reserve System (U.S.).
- Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March.
- Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
- Grenadier, Steven R. & Weiss, Allen M., 1997. "Investment in technological innovations: An option pricing approach," Journal of Financial Economics, Elsevier, vol. 44(3), pages 397-416, June.
- Loury, Glenn C, 1979.
"Market Structure and Innovation,"
The Quarterly Journal of Economics,
MIT Press, vol. 93(3), pages 395-410, August.
When requesting a correction, please mention this item's handle: RePEc:ctc:serie6:itemq0955. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gianluca Femminis)
If references are entirely missing, you can add them using this form.