We present a dynamic duopoly model of technical innovation in which R&D costs decrease exogenously with time and inter-firm knowledge spillover lowers the second comer's R&D cost. The spillover effect only becomes available after a disclosure lag. These features allow us to identify a new type of equilibrium: the leader delays investment until the R&D cost is low enough that the follower finds it optimal to invest as soon as he can benefit from the spillover. This equilibrium is subgame perfect over a wide range of parameters and raises several interesting implications. First, in our new equilibrium, the time delay between the two R&D investments is realistically short. Second, while the presence of a spillover favors the second-mover, this benefit is not enough to rule out a first-mover advantage. Indeed, the first-mover advantage survives whenever technical progress is sufficiently fast and the disclosure lag is relatively long. Third, in case of a major innovation, our equilibrium implies under-investment, which requires a substantial public intervention in favor of the investment activity.

(2010). First-Mover Advantage in a Dynamic Duopoly with Spillover [journal article - articolo]. In THE B.E. JOURNAL OF THEORETICAL ECONOMICS. Retrieved from http://hdl.handle.net/10446/24698

First-Mover Advantage in a Dynamic Duopoly with Spillover

MARTINI, Gianmaria
2010-01-01

Abstract

We present a dynamic duopoly model of technical innovation in which R&D costs decrease exogenously with time and inter-firm knowledge spillover lowers the second comer's R&D cost. The spillover effect only becomes available after a disclosure lag. These features allow us to identify a new type of equilibrium: the leader delays investment until the R&D cost is low enough that the follower finds it optimal to invest as soon as he can benefit from the spillover. This equilibrium is subgame perfect over a wide range of parameters and raises several interesting implications. First, in our new equilibrium, the time delay between the two R&D investments is realistically short. Second, while the presence of a spillover favors the second-mover, this benefit is not enough to rule out a first-mover advantage. Indeed, the first-mover advantage survives whenever technical progress is sufficiently fast and the disclosure lag is relatively long. Third, in case of a major innovation, our equilibrium implies under-investment, which requires a substantial public intervention in favor of the investment activity.
journal article - articolo
2010
Femminis, Gianluca; Martini, Gianmaria
(2010). First-Mover Advantage in a Dynamic Duopoly with Spillover [journal article - articolo]. In THE B.E. JOURNAL OF THEORETICAL ECONOMICS. Retrieved from http://hdl.handle.net/10446/24698
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/24698
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