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How R&D Competition Affects Investment Choices
Author(s) -
Lafay Thierry,
Maximin Céline
Publication year - 2017
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2745
Subject(s) - competition (biology) , investment (military) , incentive , industrial organization , economics , microeconomics , business , ecology , politics , political science , law , biology
We analyze firm research and development investment incentives in a framework in which only one innovation can be undertaken. We assume that the probability of discovering the innovation depends on a parameter that represents the technical difficulty of innovating. We show that patent protection is not always necessary for investments to be made. With patent protection, research and development competition leads to a symmetric equilibrium. Moreover, firms over‐invest in marginal innovation but under‐invest in difficult innovation, which explains why and how public authorities should intervene to promote specific research in certain economic sectors. Copyright © 2015 John Wiley & Sons, Ltd.