Investment Secrecy and Competitive R&D

Aditi Sengupta

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 3, 1573-1583

Abstract: Secrecy about investment in research and development (R&D) can promote greater technological change and higher social welfare in competitive industries. In a duopoly where each firm has private information about its actual production technology (or cost) and firms engage in cost-reducing R&D with uncertain outcomes prior to engaging in price competition, the equilibrium outcome when firms do not observe the R&D investment chosen by the rival (investment secrecy) yields higher investment, social welfare, and industry profit compared to the outcome when R&D investment levels of firms are publicly observable. Government intervention to secure disclosure of R&D investments may be counterproductive; trade secret laws that protect privacy of information related to R&D inputs or investment may be helpful.

Keywords: Cost-reducing technology; Duopoly; Incomplete information; Price competition; Secrecy; Strategic investment (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/bejeap-2016-0047

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