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A strategic investment game with endogenous absorptive capacity

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  • Hammerschmidt, Anna

Abstract

R&D plays a dual role: First, it generates new knowledge and second, it develops a firm's absorptive capacity. Most of the existing strategic investment game models neglect, however, the second role of R&D. The aim of this paper is to incorporate the absorptive capacity hypothesis in such a model by endogenizing the spillover. A two-stage game is established and subsequently solved, looking for the subgame perfect Nash equilibria. Considering the comparative static properties of the model as well as the simulation results, a new effect appears: The "free-rider effect" of the models with exogenous spillover, which deteriorates the higher the spillover becomes, is now counteracted by the "absorptive capacity effect". It is found that firms will invest more in R&D to strengthen absorptive capacity when the spillover parameter is higher. (author's abstract)

Suggested Citation

  • Hammerschmidt, Anna, 2006. "A strategic investment game with endogenous absorptive capacity," Department of Economics Working Paper Series 92, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:106
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    2. D׳Souza, Derrick E. & Kulkarni, Shailesh S., 2015. "A framework and model for absorptive capacity in a dynamic multi-firm environment," International Journal of Production Economics, Elsevier, vol. 167(C), pages 50-62.
    3. Leahy, Dermot & Neary, J. Peter, 2007. "Absorptive capacity, R&D spillovers, and public policy," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1089-1108, October.
    4. Francesco Di Comite & dArtis Kancs, 2015. "Macro-Economic Models for R&D and Innovation Policies," JRC Working Papers on Corporate R&D and Innovation 2015-03, Joint Research Centre.
    5. Andrea Canidio, 2019. "The Allocation of Scientific Talent," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1647-1672, October.
    6. Andrea, Canidio, 2009. "The production of science," MPRA Paper 25218, University Library of Munich, Germany.
    7. Andrea, Canidio, 2010. "Absorptive capacity, the allocation of scientists, and firms' research productivity," MPRA Paper 30257, University Library of Munich, Germany.
    8. Ben Youssef, Slim, 2009. "Transboundary Pollution and Absorptive Capacity," MPRA Paper 17158, University Library of Munich, Germany.

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