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Optimal Sharing Strategies in Dynamic Games of Research and Development

  • Nisvan Erkal
  • Deborah Minehart

This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. In practice, research and development projects can take years or even decades to complete. We model an uncertain research process, where research projects consist of multiple sequential steps. We ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity and the uncertainty that the firms face decreases. Such a dynamic approach allows us to analyze the interaction between how close the firms are to product market competition and how intense that competition is. If product market competition is relatively moderate, the lagging firm is expected never to drop out and the incentives to share intermediate research outcomes decreases monotonically with progress. However, if product market competition is relatively intense, the incentives to share may increase with progress. These results illustrate under what circumstances it is necessary to have policies aimed at encouraging cooperation in R&D and when such policies should be directed towards early vs. later stage research

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1038.

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Length: 47 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mlb:wpaper:1038
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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  1. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  2. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
  3. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  5. Henry Wang, X., 2002. "Fee versus royalty licensing in a differentiated Cournot duopoly," Journal of Economics and Business, Elsevier, vol. 54(2), pages 253-266.
  6. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  7. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  8. Vonortas, Nicholas S., 1994. "Inter-firm cooperation with imperfectly appropriable research," International Journal of Industrial Organization, Elsevier, vol. 12(3), pages 413-435, September.
  9. Sudipto Bhattacharya and Dilip Mookherhee., 1984. "Portfolio Choice in Research and Development," Research Program in Finance Working Papers 147, University of California at Berkeley.
  10. Tor Klette & David de Meza, 1986. "Is the Market Biased Against Risky R&D?," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 133-139, Spring.
  11. Dasgupta, Partha & Maskin, Eric, 1987. "The Simple Economics of Research Portfolios," Economic Journal, Royal Economic Society, vol. 97(387), pages 581-95, September.
  12. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
  13. Tarun Khanna & Marco Iansiti, 1997. "Firm Asymmetries and Sequential R&D: Theory and Evidence from the Mainframe Computer Industry," Management Science, INFORMS, vol. 43(4), pages 405-421, April.
  14. 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.
  15. James Cardon & Dan Sasaki, 1998. "Preemptive Search and R&D Clustering," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 324-338, Summer.
  16. Kenneth L. Judd, 2003. "Closed-loop equilibrium in a multi-stage innovation race," Economic Theory, Springer, vol. 21(2), pages 673-695, 03.
  17. Reinganum, Jennifer F., . "Dynamic Games of Innovation," Working Papers 287, California Institute of Technology, Division of the Humanities and Social Sciences.
  18. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  19. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier.
  20. D'ASPREMONT, Claude & BHATTACHARYA, Sudipto & GERARD-VARET, Louis-André, . "Bargaining and sharing innovative knowledge," CORE Discussion Papers RP -1465, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. Aghion, Philippe & Tirole, Jean, 1994. "Opening the black box of innovation," European Economic Review, Elsevier, vol. 38(3-4), pages 701-710, April.
  22. Luís M. B. Cabral, 2003. "R&D Competition when firms Choose Variance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 139-150, 03.
  23. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
  24. Choi, Jay Pil, 1993. "Cooperative R&D with product market competition," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 553-571.
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