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A strategic investment game with endogenous absorptive capacity

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  • Anna Hammerschmidt

    () (Department of Economics, Vienna University of Economics & B.A.)

Abstract

R&D plays a dual role: First, it generates new knowledge and second, it develops a firm's absorptive capacity. Most of the existing strategic investment game models neglect, however, the second role of R&D. The aim of this paper is to incorporate the absorptive capacity hypothesis in such a model by endogenizing the spillover. A two-stage game is established and subsequently solved, looking for the subgame perfect Nash equilibria. Considering the comparative static properties of the model as well as the simulation results, a new effect appears: The "free-rider effect" of the models with exogenous spillover, which deteriorates the higher the spillover becomes, is now counteracted by the "absorptive capacity effect". It is found that firms will invest more in R&D to strengthen absorptive capacity when the spillover parameter is higher.

Suggested Citation

  • Anna Hammerschmidt, 2006. "A strategic investment game with endogenous absorptive capacity," Department of Economics Working Papers wuwp092, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp092
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    Cited by:

    1. Ben Youssef, Slim & Zaccour, Georges, 2014. "Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies," Strategic Behavior and the Environment, now publishers, vol. 4(1), pages 41-58, April.
    2. D׳Souza, Derrick E. & Kulkarni, Shailesh S., 2015. "A framework and model for absorptive capacity in a dynamic multi-firm environment," International Journal of Production Economics, Elsevier, vol. 167(C), pages 50-62.
    3. Francesco Di Comite & D'Artis Kancs, 2015. "Macro-Economic Models for R&D and Innovation Policies - A Comparison of QUEST, RHOMOLO, GEM-E3 and NEMESIS," JRC Working Papers JRC94323, Joint Research Centre (Seville site).
    4. Leahy, Dermot & Neary, J. Peter, 2007. "Absorptive capacity, R&D spillovers, and public policy," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1089-1108, October.
    5. Andrea Canidio, 2012. "The Allocation of Scientific Talent," CEU Working Papers 2012_7, Department of Economics, Central European University, revised 15 May 2012.
    6. Andrea, Canidio, 2009. "The production of science," MPRA Paper 25218, University Library of Munich, Germany.
    7. Andrea, Canidio, 2010. "Absorptive capacity, the allocation of scientists, and firms' research productivity," MPRA Paper 30257, University Library of Munich, Germany.
    8. Ben Youssef, Slim, 2009. "Transboundary Pollution and Absorptive Capacity," MPRA Paper 17158, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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