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Dynamic R&D Competition


  • Gene M. Grossman
  • Carl Shapiro


We study a simple, two-stage, stochastic patent race involving two firms. We examine the behavior of the participants as they gain the lead or fall behind in the race. We find that the leader engages in R&D more intensively than does the follower, and that both firms intensify their efforts if the follower does catch up with the leader. We also analyze (1) the attractiveness of licensing, whereby the leader shares his results with the follower,(2) a policy of issuing patents for intermediate research results, and (3) the effects of research joint ventures, whereby the firms coordinate their initial research efforts and share their results.

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  • Gene M. Grossman & Carl Shapiro, 1985. "Dynamic R&D Competition," NBER Working Papers 1674, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1674
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    References listed on IDEAS

    1. Kenneth L. Judd, 2003. "Closed-loop equilibrium in a multi-stage innovation race," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 673-695, March.
    2. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August.
    3. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    4. Christopher Harris & John Vickers, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 193-209.
    5. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
    6. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
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