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Project Choice And Risk In R&D

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  • Heiko A. Gerlach
  • Thomas Rønde
  • Konrad Stahl

Abstract

We introduce stochastic R&D in the Hotelling model and show that if the technical risk is sufficiently high, all firms focus on the most valuable market segment. We then endogenize technical risk by allowing firms to choose between a safe and a risky R&D technology. Firms either both target the most attractive market with at least one firm using the risky technology or they choose different niche projects and both apply the safe technology. R&D spillovers lead to more differentiated R&D projects and patent protection to less. Project coordination within an RJV implies more differentiation, and may be welfare‐improving.

Suggested Citation

  • Heiko A. Gerlach & Thomas Rønde & Konrad Stahl, 2005. "Project Choice And Risk In R&D," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 53-81, March.
    • Handle: RePEc:bla:jindec:v:53:y:2005:i:1:p:53-81
    DOI: 10.1111/j.0022-1821.2005.00245.x
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    Cited by:

    1. Patrick Herbst & Eric Jahn, 2017. "IP-for-IP or Cash-for-IP? R&D Competition and the Market for Technology," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 75-101, August.
    2. Teresa de Noronha Vaz & Peter Nijkamp, 2009. "Knowledge and innovation: The strings between global and local dimensions of sustainable growth," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 21(4), pages 441-455, July.
    3. Jay Pil Choi & Heiko Gerlach, 2014. "Selection Biases in Complementary R&D Projects," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 899-924, December.
    4. Rønde, Thomas & Henkel, Joachim & Wagner, Marcus, 2010. "And the Winner Is--Acquired: Entrepreneurship as a Contest with Acquisition as the Prize," CEPR Discussion Papers 8147, C.E.P.R. Discussion Papers.
    5. Christou, Charalambos & Vettas, Nikolaos, 2005. "Location choices under quality uncertainty," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 268-278, November.
    6. Toshihiro Matsumura & Noriaki Matsushima, 2007. "On patent licensing in spatial competition with endogenous location choice," Discussion Papers 2007-35, Kobe University, Graduate School of Business Administration.
    7. Xing, Mingqing & Tan, Tingting & Wang, Xia, 2021. "Emission taxes and environmental R&D risk choices in a duopoly market," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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