Irreversible investment and R&amp;D spillovers in a dynamic duopoly

Femminis, Gianluca; Martini, Gianmaria

doi:10.1016/j.jedc.2011.03.005

Cited by 23 publications

(6 citation statements)

References 41 publications

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“…Technology spillover is the concept that when one firm attains a new technology, it becomes easier for other firms to acquire the same technology, for instance because they can learn from the innovator firm's research advances. An example of such a paper is Femminis and Martini [6]. In this paper, investment is a "one-shot" action which increases the firms' profit rate.…”

Section: Literature Overviewmentioning

confidence: 99%

A duopoly preemption game with two alternative stochastic investment choices

Dahl

Stokkereit

2019

Afr. Mat.

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This paper studies a duopoly investment model with uncertainty. There are two alternative irreversible investments. The first firm to invest gets a monopoly benefit for a specified period of time. The second firm to invest gets information based on what happens with the first investor, as well as cost reduction benefits. We describe the payoff functions for both the leader and follower firm. Then, we present a stochastic control game where the firms can choose when to invest, and hence influence whether they become the leader or the follower. In order to solve this problem, we combine techniques from optimal stopping and game theory. For a specific choice of parametres, we show that no pure symmetric subgame perfect Nash equilibrium exists. However, an asymmetric equilibrium is characterized. In this equilibrium, two disjoint intervals of market demand level give rise to preemptive investment behavior of the firms, while the firms otherwise are more reluctant to be the first mover.

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Section: Literature Overviewmentioning

confidence: 99%

A duopoly preemption game with two alternative stochastic investment choices

Dahl

Stokkereit

2019

Afr. Mat.

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“…Hoppe [21] allows for uncertainty regarding the success of new technology adoption whereas in Thijssen et al [33] information regarding the value of a project arrives continuously over time, and the second investor faces an identical cost but learns about a project's true protability from the rst. Femminis and Martini [10] allow for a disclosure lag of random duration before the follower receives the information. In all of these models both preemption and attrition can occur as in ours, depending on the level of spillovers, but aside from Thijssen et al, all focus on pure strategy equilibria, whereas we characterize the symmetric mixed strategy equilibrium a reasonable methodological choice when rms are assumed to be ex-ante symmetric, which provides what seems to us to be a more intuitive characterization of socially optimal IP protection.…”

Section: Quoted In Fudenberg Andmentioning

confidence: 99%

Winner-Take-All, Take-Most or Pay-Some? Optimal Protection of Innovation in a Dynamic Model of Product Development

2017

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In a model of investment in product development in duopoly we study the implications of dierent costs of innovating and imitating for rm strategies and optimal IP protection, relating these to the dynamic characteristics of a stochastic demand. A critical relative cost is identied that determines whether strategic competition takes the form of attrition or preemption, with industry value being maximized when rms neither stall nor hasten entry. Provided that demand growth and volatility are suciently low, as typically arises in mature industries, it is socially desirable to provide innovators with complete protection (winner-take-all), implying a preemption race. But when demand is rapidly expanding and highly unpredictable a social optimum can involve a low level of protection, implying attrition, albeit with a positive lower bound for the optimal level of imitation cost (winner-pays-some). Industry prots increase if rms can commit not to seek stronger IP protection once they have innovated, providing a rationale for open standards. While buyouts have ambiguous welfare eects, simple licensing schemes are welfare improving.JEL classication: G31, L13, O33

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“…Stochastic game models under a variety of uncertainty models (fluctuating demand, exogenous or endogenous technology shocks, duopoly or oligopoly, etc.) have been considered, see Weeds [2002], Huisman and Kort [2004], Femminis and Martini [2011] or the recent review in Azevedo and Paxson [2014]. A major topic in this research is to determine the market structure.…”

Section: Related Frameworkmentioning

confidence: 99%

Technology ladders and R&D in dynamic Cournot markets

Ludkovski

Sircar

2016

Journal of Economic Dynamics and Control

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Motivated by dramatic and unpredictable technological advances in energy production (for instance drilling and extraction of shale oil), we extend Cournot models of competition to incorporate research and development (R&D) that can lead to (stochastic) drops in production costs. Our model combines features of patent racing with dynamic market structure, capturing the interplay between the immediate competition in terms of production rates and the long-term competition in R&D. The resulting Markov Nash equilibrium is found from a sequence of onestep static games arising between R&D successes, and several numerical examples and extensive analysis of the emerging comparative statics are presented. Analyzing the relationship between current market dominance and the level of R&D investments, we find that market leaders tend to invest more, which in some sense makes oligopoly dynamically unstable. We show that anticipated market transitions have long-term impact; for example the potential of future monopoly can spur R&D investment now, even if the firm is presently uncompetitive and not actively producing. We also show that, surprisingly, random innovations have an ambiguous effect on R&D. This feature, which is driven by the Cournot framework, contrasts with the common situation whereby uncertainty lowers innovation and delays R&D investments. Finally, we demonstrate that increased competition may actually increase efforts to innovate through higher desire to achieve dominance. This would match the anecdotal evidence that the threat of market entrants forces incumbents to maintain high R&D.

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Irreversible investment and R&D spillovers in a dynamic duopoly

Cited by 23 publications

References 41 publications

A duopoly preemption game with two alternative stochastic investment choices

A duopoly preemption game with two alternative stochastic investment choices

Winner-Take-All, Take-Most or Pay-Some? Optimal Protection of Innovation in a Dynamic Model of Product Development

Technology ladders and R&D in dynamic Cournot markets

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