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Investment Secrecy and Competitive R&D

Author

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  • Sengupta Aditi

    (Department of Economics, Auburn University 0341 Haley Center, Auburn, AL 36849-5412, United States of America)

Abstract

Secrecy about investment in research and development (R&D) can promote greater technological change and higher social welfare in competitive industries. In a duopoly where each firm has private information about its actual production technology (or cost) and firms engage in cost-reducing R&D with uncertain outcomes prior to engaging in price competition, the equilibrium outcome when firms do not observe the R&D investment chosen by the rival (investment secrecy) yields higher investment, social welfare, and industry profit compared to the outcome when R&D investment levels of firms are publicly observable. Government intervention to secure disclosure of R&D investments may be counterproductive; trade secret laws that protect privacy of information related to R&D inputs or investment may be helpful.

Suggested Citation

  • Sengupta Aditi, 2016. "Investment Secrecy and Competitive R&D," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1573-1583, September.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:3:p:1573-1583:n:16
    DOI: 10.1515/bejeap-2016-0047
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    References listed on IDEAS

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    1. Thomas, Charles J., 1997. "Disincentives for cost-reducing investment," Economics Letters, Elsevier, vol. 57(3), pages 359-363, December.
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    Cited by:

    1. Kyung Hwan Baik & Sang-Kee Kim, 2020. "Observable versus unobservable R&D investments in duopolies," Journal of Economics, Springer, vol. 130(1), pages 37-66, June.
    2. Karbowski, Adam, 2019. "Greed and fear in downstream R&D games," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 32, pages 63-76.

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