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R&D COMPETITION WITH ASYMMETRIC FIRMS
Author(s) -
PoyagoTheotoky Joanna
Publication year - 1996
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.1996.tb00849.x
Subject(s) - duopoly , incentive , competition (biology) , economics , microeconomics , production (economics) , production cost , tournament , cournot competition , mathematics , mechanical engineering , ecology , combinatorics , engineering , biology
A bstract This paper considers a non‐tournament duopoly model of process innovation. Costs of production can be reduced by firms spending on R&D. Firms are asymmetric in the sense that they may differ in their initial costs of production. It is shown that the high‐cost firm may spend more (or less) in R&D than its low‐cost rival. This main result is dependent on the relative magnitude of two important forces: the incentive effect, whereby the low‐cost firm always has a stronger incentive to spend on cost‐reducing R&D, and the effectiveness factor, which favours the high‐cost firm.