Irreversible investment and R&D spillovers in a dynamic duopoly

Gianluca Femminis, Gianmaria Martini

Risultato della ricerca: Contributo in rivistaArticolo in rivista

14 Citazioni (Scopus)

Abstract

Investments in new production processes usually involve a significant amount of R&D, generating spillovers that lowers the second comer's investment cost. We show that these spillovers substantially affect the equilibrium of the dynamic game. Even for low spillover values, the leader delays her investment until the stochastic fundamental has gone past the level such that the follower's optimal strategy is to invest as soon as he attains the spillover. This bears several interesting implications. First, because the follower invests as he benefits from the spillover, in equilibrium the average time delay between the two investments is short, as it should be expected. Second, in case of a major innovation, an optimal public policy requires an intervention in favor of the investment activity; an increase in uncertainty - delaying the equilibrium - calls for higher subsidization rates. Third, numerical simulations show that the spillover reduces the difference between the leader's and the follower's maximum value functions. Accordingly, our model can help generate realistic market betas. © 2011 Elsevier B.V.
Lingua originaleEnglish
pagine (da-a)1061-1090
Numero di pagine30
RivistaJOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volume35
DOI
Stato di pubblicazionePubblicato - 2011

Keywords

  • Dynamic oligopoly
  • Knowledge spillover
  • Irreversible investment

Fingerprint Entra nei temi di ricerca di 'Irreversible investment and R&D spillovers in a dynamic duopoly'. Insieme formano una fingerprint unica.

Cita questo