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Sequencing R&D decisions with a consumer-friendly firm and spillovers

Author

Listed:
  • Mariel Leal

    (Tecnologico de Monterrey)

  • Arturo García

    (Universidad de las Américas Puebla)

  • Sang-Ho Lee

    (Chonnam National University)

Abstract

This study considers a duopoly model in which both a consumer-friendly (CF) firm and a for-profit (FP) firm undertake cost-reducing R&D investments in an endogenous R&D timing game and then play Cournot output competition. When the CF firm chooses its profit-oriented consumer-friendliness, we show that the consumer-friendliness is non-monotone in spillovers under both simultaneous move and sequential move with FP firm’s leadership while it is decreasing under sequential move with CF firm’s leadership. We also show that a simultaneous-move outcome is a unique equilibrium when the spillovers are low and the CF firm invests higher R&D and obtains higher profits. When the spillovers are not low, two sequential-move outcomes appear and the CF firm might obtain lower profits with higher spillovers under the CF firm leadership.

Suggested Citation

  • Mariel Leal & Arturo García & Sang-Ho Lee, 2021. "Sequencing R&D decisions with a consumer-friendly firm and spillovers," The Japanese Economic Review, Springer, vol. 72(2), pages 243-260, April.
    • Handle: RePEc:spr:jecrev:v:72:y:2021:i:2:d:10.1007_s42973-019-00028-5
    DOI: 10.1007/s42973-019-00028-5
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    Cited by:

    1. Jiaqi Chen & Sang-ho Lee, 2022. "R&D rivalry with the interaction of output subsidies in an extensive endogenous timing game," Economics Bulletin, AccessEcon, vol. 42(3), pages 1621-1630.
    2. Sang-Ho Lee & Timur K. Muminov, 2021. "Endogenous Timing of R&D Decisions and Privatization Policy with Research Spillovers," Journal of Industry, Competition and Trade, Springer, vol. 21(4), pages 505-525, December.
    3. Xing Gao & Xifan Wang & Weijun Zhong & Ying Wang, 2023. "R&D subsidy and output subsidy in a duopoly: The role of technology spillover and R&D budget," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 524-538, September.
    4. Jiaqi Chen & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under R&D competition: Output versus R&D subsidies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 77-100, March.
    5. Jumpei Hamamura & Vinay Ramani, 2023. "Social performance versus relative performance evaluation, asymmetric costs, and quantity competition under managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1706-1719, April.

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    More about this item

    Keywords

    Simultaneous R&D decisions; Sequential R&D decisions; Consumer-friendly firm; R&D spillovers;
    All these keywords.

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • 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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