IDEAS home Printed from https://ideas.repec.org/p/not/notcdx/2008-04.html
   My bibliography  Save this paper

Understanding Perpetual R&D Races

Author

Listed:
  • Yves Breitmoser

    () (Institute of Microeconomics, European University Viadrina)

  • Jonathan H.W. Tan

    () (Nottingham University Business School, University of Nottingham)

  • Daniel John Zizzo

    () (School of Economics, University of East Anglia)

Abstract

This paper presents an experimental study of dynamic indefinite horizon R&D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects’ strategies are far less sensitive. In most treatments, the R&D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.

Suggested Citation

  • Yves Breitmoser & Jonathan H.W. Tan & Daniel John Zizzo, 2008. "Understanding Perpetual R&D Races," Discussion Papers 2008-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:not:notcdx:2008-04
    as

    Download full text from publisher

    File URL: https://www.nottingham.ac.uk/cedex/documents/papers/2008-04.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
    2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
    3. Martin Dufwenberg & Uri Gneezy & Jacob Goeree & Rosemarie Nagel, 2007. "Price floors and competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 211-224, October.
    4. Marco Battaglini & Thomas Palfrey, 2012. "The dynamics of distributive politics," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(3), pages 739-777, April.
    5. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
    6. R. Cookson, 2000. "Framing Effects in Public Goods Experiments," Experimental Economics, Springer;Economic Science Association, vol. 3(1), pages 55-79, June.
    7. Aoki, Reiko, 1991. "R&D Competition for Product Innovation: An Endless Race," American Economic Review, American Economic Association, vol. 81(2), pages 252-256, May.
    8. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    9. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    10. Zizzo, Daniel John, 2002. "Racing with uncertainty: a patent race experiment," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 877-902, June.
    11. Cockburn, Iain & Henderson, Rebecca, 1994. "Racing to Invest? The Dynamics of Competition in Ethical Drug Discovery," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 481-519, Fall.
    12. Dimitrios Voliotis, 2006. "Strategic market games quantal response equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 475-482, January.
    13. C. Monica Capra, 1999. "Anomalous Behavior in a Traveler's Dilemma?," American Economic Review, American Economic Association, vol. 89(3), pages 678-690, June.
    14. Turocy, Theodore L., 2005. "A dynamic homotopy interpretation of the logistic quantal response equilibrium correspondence," Games and Economic Behavior, Elsevier, vol. 51(2), pages 243-263, May.
    15. Yi, Kang-Oh, 2005. "Quantal-response equilibrium models of the ultimatum bargaining game," Games and Economic Behavior, Elsevier, vol. 51(2), pages 324-348, May.
    16. Mathijs Jansen & Dries Vermeulen, 2001. "On the computation of stable sets and strictly perfect equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(2), pages 325-344.
    17. Reinhard Selten, 1998. "Axiomatic Characterization of the Quadratic Scoring Rule," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 43-61, June.
    18. Yves Breitmoser & Jonathan H. W. Tan & Daniel John Zizzo, 2006. "A Test of Perpetual R&D Races," Working Papers 06-11, Centre for Competition Policy, University of East Anglia.
    19. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aghion, Philippe & Bechtold, Stefan & Cassar, Lea & Herz, Holger, 2014. "The Causal Effects of Competition on Innovation: Experimental Evidence," Scholarly Articles 27738688, Harvard University Department of Economics.
    2. Friedel Bolle & Jonathan H. W. Tan & Daniel John Zizzo, 2014. "Vendettas," American Economic Journal: Microeconomics, American Economic Association, vol. 6(2), pages 93-130, May.
    3. Emanuela Lezzi & Piers Fleming & Daniel John Zizzo, 2015. "Does it matter which effort task you use? A comparison of four effort tasks when agents compete for a prize," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-05, School of Economics, University of East Anglia, Norwich, UK..
    4. Isabelle Brocas & Juan Carrillo & Thomas Palfrey, 2012. "Information gatekeepers: theory and experimental evidence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(3), pages 649-676, November.
    5. Yves Breitmoser, 2015. "Cooperation, but No Reciprocity: Individual Strategies in the Repeated Prisoner's Dilemma," American Economic Review, American Economic Association, vol. 105(9), pages 2882-2910, September.
    6. Breitmoser, Yves & Tan, Jonathan H.W., 2010. "Generosity in bargaining: Fair or fear?," MPRA Paper 27444, University Library of Munich, Germany.
    7. Yves Breitmoser, 2012. "Proto-coalition bargaining and the core," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(3), pages 581-599, November.
    8. Breitmoser, Yves & Tan, Jonathan H.W., 2014. "Reference Dependent Altruism," MPRA Paper 52774, University Library of Munich, Germany.
    9. Krumer, Alex & Megidish, Reut & Sela, Aner, 2014. "Round-Robin Versus Elimination in Tournaments with a Dominant Player," CEPR Discussion Papers 10081, C.E.P.R. Discussion Papers.
    10. Joyce, Yvonne & Walker, Stephen P., 2015. "Gender essentialism and occupational segregation in insolvency practice," Accounting, Organizations and Society, Elsevier, vol. 40(C), pages 41-60.
    11. repec:bla:scandj:v:119:y:2017:i:4:p:1167-1200 is not listed on IDEAS
    12. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies � A Laboratory Experiment," SOI - Working Papers 0905, Socioeconomic Institute - University of Zurich.
    13. Alex Krumer & Reut Megidish & Aner Sela, 2017. "Round-Robin Tournaments with a Dominant Player," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(4), pages 1167-1200, October.
    14. Romain Gauriot & Lionel Page, 2014. "Does success breed success? A quasi-experiment on strategic momentum in dynamic contests," QuBE Working Papers 028, QUT Business School.
    15. Moreira, Jose R. & Pacca, Sergio A. & Parente, Virginia, 2014. "The future of oil and bioethanol in Brazil," Energy Policy, Elsevier, vol. 65(C), pages 7-15.
    16. Alex Krumer, 2013. "Best-of-two contests with psychological effects," Theory and Decision, Springer, vol. 75(1), pages 85-100, July.
    17. Mathias Erlei & Anne-Kathrin Dimmig, 2012. "Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty," TUC Working Papers in Economics 0008, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    18. Breitmoser, Yves, 2010. "Hierarchical Reasoning versus Iterated Reasoning in p-Beauty Contest Guessing Games," MPRA Paper 19893, University Library of Munich, Germany.
    19. Breitmoser, Yves & Tan, Jonathan H.W., 2011. "Ultimata bargaining: generosity without social motives," MPRA Paper 33613, University Library of Munich, Germany.

    More about this item

    Keywords

    R&D race; innovation; dynamics; experiment.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:not:notcdx:2008-04. 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: (Suzanne Robey). General contact details of provider: http://edirc.repec.org/data/cdnotuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.