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Understanding perpetual R&D races

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  • Yves Breitmoser
  • Jonathan Tan
  • Daniel Zizzo

Abstract

This paper presents an experimental study of dynamic indefinite horizon R and D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects' strategies are far less sensitive. In most treatments the R&D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.
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Suggested Citation

  • Yves Breitmoser & Jonathan Tan & Daniel Zizzo, 2010. "Understanding perpetual R&D races," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(3), pages 445-467, September.
    • Handle: RePEc:spr:joecth:v:44:y:2010:i:3:p:445-467
    DOI: 10.1007/s00199-009-0487-4
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    More about this item

    Keywords

    Markov quantal response equilibrium; Race; Experiment; C72; C91; O31;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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