Innovative Activity and Sunk Cost
We analyze a patent race where the first innovator receives a time-dependent reward while all firms incur costs. When firms are identical, there is a unique, symmetric, mixed-strategy equilibrium that yields zero expected profits for all firms. Furthermore, the expected innovation time is an increasing function of the number of firms and a decreasing function of the size of the reward. When one firm has a higher reward than another, it is more likely to win. Although similar to an all-pay auction, our approach may yield both similar and qualitatively different behavior.
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|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.|
Web page: http://econ.tau.ac.il/foerder/about
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