Production experiences and market structure in R&D competition
Resource
Journal of Economic Dynamics & Control 30,163-183
Journal
Journal of Economic Dynamics & Control 30
Pages
163-183
Date Issued
2006
Date
2006
Author(s)
Chang, Shun-Chiao
Wu, Ho-Mou
DOI
246246/2006111501254645
Abstract
In the R&D race the incumbent enjoys an advantage of learning from production
experiences, but this important feature has not been incorporated into existing studies.
Assuming that the technological knowledge is accumulated not only by R&D expenditures but
also by production experiences, we study the properties of optimal investment strategies in a
model with an incumbent & many identical challengers. After proving the existence of a
unique Nash equilibrium in the R&D race, we demonstrate analytically that the likelihood of
persistent leadership increases with production experiences of the incumbent but decreases
with the number of challengers. Numerical analyses also establish that (i) the challengers
always invest more than the incumbent & the difference increases with production
experiences, the flow of monopoly profits & the number of challengers; & (ii) the
likelihood of persistent leadership increases with the value of being the winner & the value of being a loser but decreases with expected waiting time of R&D innovation & the flow of
monopoly profits. However, destructive innovations may still occur even when production
experiences are allowed to play an important role in the R&D competition.
Subjects
Production experiences
Market structure
Persistent leadership
Type
journal article