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A Stochastic Competitive R&D Race Where “Winner Takes All”

Author

Listed:
  • Pelin G. Canbolat

    (Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel)

  • Boaz Golany

    (Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel)

  • Inbal Mund

    (Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel)

  • Uriel G. Rothblum

    (Formerly with Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa, Israel)

Abstract

The paper considers a race among multiple firms that compete over the development of a product. The first firm to complete the development gains a reward, whereas the other firms gain nothing. Each firm decides how much to invest in developing the product, and the time it completes the development is a random variable that depends on the investment level. The paper provides a method for explicitly computing a unique Nash equilibrium, parametrically in the interest rate; for a given interest rate, the Nash equilibrium is determined in time that is linear in the number of firms. The structure of the solution yields insights about the behavior of the participants. Furthermore, an explicit expression for a unique globally optimal solution is obtained and compared to the unique Nash equilibrium.

Suggested Citation

  • Pelin G. Canbolat & Boaz Golany & Inbal Mund & Uriel G. Rothblum, 2012. "A Stochastic Competitive R&D Race Where “Winner Takes All”," Operations Research, INFORMS, vol. 60(3), pages 700-715, June.
    • Handle: RePEc:inm:oropre:v:60:y:2012:i:3:p:700-715
    DOI: 10.1287/opre.1120.1055
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    References listed on IDEAS

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    Cited by:

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    2. Dawid, Herbert & Keoula, Michel Y. & Kopel, Michael & Kort, Peter M., 2023. "Dynamic investment strategies and leadership in product innovation," European Journal of Operational Research, Elsevier, vol. 306(1), pages 431-447.
    3. Pelin G. Canbolat, 2019. "Stochastic Contests with Linex Utility Functions," Alphanumeric Journal, Bahadir Fatih Yildirim, vol. 7(1), pages 113-128, June.
    4. B. Golany & N. Goldberg & U. Rothblum, 2015. "Allocating multiple defensive resources in a zero-sum game setting," Annals of Operations Research, Springer, vol. 225(1), pages 91-109, February.

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