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No Pain, No Gain: An R&D Model with Endogenous Absorptive Capacity

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  • Anna Hammerschmidt

Abstract

I investigate how the introduction of the absorptive-capacity hypothesis changes the results of strategic investment games with exogenous spillover. As a novelty, this paper distinguishes between two different components of R&D: absorptive R&D and inventive R&D . It is demonstrated that a new effect appears: The absorptive-capacity effect now counteracts the free-rider effect of the traditional models. The findings show that firms will invest more in R&D to strengthen absorptive capacity when the spillover parameter is higher. To learn from its competitor, a firm needs to develop its absorptive capacity: no pain, no gain.

Suggested Citation

  • Anna Hammerschmidt, 2009. "No Pain, No Gain: An R&D Model with Endogenous Absorptive Capacity," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(3), pages 418-437, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200909)165:3_418:npngar_2.0.tx_2-h
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    Cited by:

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    2. Fouad Ouardighi & Matan Shnaiderman & Federico Pasin, 2014. "Research and Development with Stock-Dependent Spillovers and Price Competition in a Duopoly," Journal of Optimization Theory and Applications, Springer, vol. 161(2), pages 626-647, May.
    3. Savin, Ivan & Egbetokun, Abiodun, 2016. "Emergence of innovation networks from R&D cooperation with endogenous absorptive capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 82-103.
    4. Samano, Mario & Santugini, Marc & Zaccour, Georges, 2017. "Dynamics in research joint ventures and R&D collaborations," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 70-92.
    5. Abiodun Egbetokun & Ivan Savin, 2015. "Absorptive Capacity and Innovation: When Is It Better to Cooperate?," Economic Complexity and Evolution, in: Andreas Pyka & John Foster (ed.), The Evolution of Economic and Innovation Systems, edition 127, pages 373-399, Springer.
    6. Slim Ben Youssef & Michèle Breton & Georges Zaccour, 2013. "Cooperating and Non-cooperating Firms in Inventive and Absorptive Research," Journal of Optimization Theory and Applications, Springer, vol. 157(1), pages 229-251, April.
    7. Uwe Cantner & Ivan Savin, 2014. "Do Firms Benefit from Complementarity Effect in R&D and What Drives their R&D Strategy Choices?," Jena Economics Research Papers 2014-023, Friedrich-Schiller-University Jena.
    8. Zeineb Dinar, 2014. "Transboundary Pollution, R&D Spillovers, Absorptive Capacity and International Trade," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 501-513.
    9. Zhang, Yanfang, 2022. "Competitive investments between basic R&D and applied R&D with information spillovers," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 707-722.
    10. Ben Youssef, Slim & Breton, Michèle & Zaccour, Georges, 2011. "Cooperating firms in inventive and absorptive research," MPRA Paper 35326, University Library of Munich, Germany.
    11. Andrea Canidio, 2019. "The Allocation of Scientific Talent," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1647-1672, October.
    12. Keun Lee, 2024. "Economics of technology cycle time (TCT) and catch-up by latecomers: Micro-, meso-, and macro-analyses and implications," Journal of Evolutionary Economics, Springer, vol. 34(2), pages 319-349, April.
    13. Chung, Moon Young & Lee, Keun, 2015. "How Absorptive Capacity is Formed in a Latecomer Economy: Different Roles of Foreign Patent and Know-how Licensing in Korea," World Development, Elsevier, vol. 66(C), pages 678-694.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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