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Second‐Mover Advantages in Dynamic Quality Competition
Author(s) -
Hoppe Heidrun C.,
LehmannGrube Ulrich
Publication year - 2001
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2001.00419.x
Subject(s) - first mover advantage , competition (biology) , stochastic game , prime mover , product (mathematics) , quality (philosophy) , monotonic function , work (physics) , mathematical economics , computer science , industrial organization , economics , mathematics , engineering , physics , automotive engineering , mechanical engineering , ecology , mathematical analysis , geometry , quantum mechanics , biology
This paper explores a dynamic model of product innovation, extending the work of Dutta, Lach, and Rustichini (1995). It is shown that if R&D costs for quality improvements are low, the dynamic competition is structured as a race for being the pioneer firm with payoff equalization in equilibrium, but switches to a waiting game with a second‐mover advantage in equilibrium if R&D costs are high. Moreover, the second‐mover advantage increases monotonically as R&D becomes more costly.