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Endogenous heterogeneity in duopoly with deterministic one-way spillovers

Author

Listed:
  • Adriana Gama
  • Isabelle Maret
  • Virginie Masson

Abstract

This paper examines the standard symmetric two-period R&D duopoly model, but with a deterministic one-way spillover structure. Though the two firms are ex-ante identical, one obtains a unique pair of asymmetric equilibria of R&D investments, leading to inter-firm heterogeneity in the industry, in R&D roles as well as in unit costs. We analyze the impact of a change in the spillover parameter and R&D costs on firms’ levels of R&D and profits. We find that higher spillovers need not lead to lower R&D investments for both firms. In addition, equilibrium profits may improve due to the presence of spillovers, and it may be advantageous to be the R&D imitator rather than the R&D innovator.

Suggested Citation

  • Adriana Gama & Isabelle Maret & Virginie Masson, 2018. "Endogenous heterogeneity in duopoly with deterministic one-way spillovers," Working Papers of BETA 2018-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2018-23
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    File URL: http://beta.u-strasbg.fr/WP/2018/2018-23.pdf
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    Cited by:

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    2. Huizhong Liu & Jingwen Tian, 2024. "Spillovers and strategic commitment in R&D," Theory and Decision, Springer, vol. 96(3), pages 477-501, May.
    3. Chu, Tong & Zhou, Wei, 2022. "Complex dynamics of R&D competition with one-way spillover based on intellectual property protection," Chaos, Solitons & Fractals, Elsevier, vol. 163(C).
    4. Yassine Badra & Damien Gaumont & Christine Halmenschlager, 2024. "Second‐best socially optimal R&D under output spillovers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(3), June.
    5. Jean‐Baptiste Tondji, 2022. "Overconfidence and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 751-767, April.
    6. Ikeda, Takeshi & Tanno, Tadanobu & Yasaki, Yoshihito, 2021. "Optimal intellectual property rights policy by an importing country," Economics Letters, Elsevier, vol. 209(C).

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    Keywords

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    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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