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Competitive analysis of R&D investment with R&D budget constraint and R&D uncertainty

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  • Xing Gao
  • Ying Wang

Abstract

This paper examines the cost‐reducing research and development (R&D) competition of duopolistic firms with consideration of R&D budget constraint and R&D uncertainty through constructing a game‐theoretic game. We find the R&D success probability decreases each firm's expected profit when this probability remains high because it intensifies R&D competition too much in this scenario. We show each firm suffers from an increase in R&D budget when such budget is moderate due to the intensified R&D competition as well. Furthermore, we reveal output subsidy leads to a higher expected total subsidy cost and a higher expected social welfare than R&D subsidy.

Suggested Citation

  • Xing Gao & Ying Wang, 2023. "Competitive analysis of R&D investment with R&D budget constraint and R&D uncertainty," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2438-2456, June.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:4:p:2438-2456
    DOI: 10.1002/mde.3827
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    References listed on IDEAS

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