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Dynamic analysis of R&D in an oligopoly under general demand and cost functions

Author

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  • Masahiko Hattori

    (Takasaki City University of Economics)

  • Yasuhito Tanaka

    (Doshisha University)

Abstract

This paper presents an analysis of cost reducing R&D investment in a dynamic oligopoly under general demand and cost functions by differential game approach. The steady state value of the R&D investment by each firm is decreasing in the number of firms. If the direct effect of R&D investment is larger (smaller) than the spillover effect, the steady state value of the industry R&D investment is increasing (decreasing) in the number of firms. If the outputs of the firms are strategic substitutes, the R&D investment by each firm given the cost level is decreasing in the number of firms. If there is no spillover effect of R&D investment, and the outputs of the firms are strategic substitutes (or strategic complements), the R&D investment of each firm given the cost level in a memoryless closed-loop solution is larger (smaller) than that in an open-loop solution. Also we show that if there is no spillover effect of R&D investment, a memoryless closed-loop solution and a feedback solution (by the Hamilton–Jacobi–Bellman equation) are equivalent.

Suggested Citation

  • Masahiko Hattori & Yasuhito Tanaka, 2022. "Dynamic analysis of R&D in an oligopoly under general demand and cost functions," OPSEARCH, Springer;Operational Research Society of India, vol. 59(2), pages 694-710, June.
    • Handle: RePEc:spr:opsear:v:59:y:2022:i:2:d:10.1007_s12597-021-00556-y
    DOI: 10.1007/s12597-021-00556-y
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    References listed on IDEAS

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