First-Mover Advantage in a Dynamic Duopoly with Spillover

Gianluca Femminis and Gianmaria Martini

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 46

Abstract: We present a dynamic duopoly model of technical innovation in which R&D costs decrease exogenously with time and inter-firm knowledge spillover lowers the second comer's R&D cost. The spillover effect only becomes available after a disclosure lag. These features allow us to identify a new type of equilibrium: the leader delays investment until the R&D cost is low enough that the follower finds it optimal to invest as soon as he can benefit from the spillover. This equilibrium is subgame perfect over a wide range of parameters and raises several interesting implications. First, in our new equilibrium, the time delay between the two R&D investments is realistically short. Second, while the presence of a spillover favors the second-mover, this benefit is not enough to rule out a first-mover advantage. Indeed, the first-mover advantage survives whenever technical progress is sufficiently fast and the disclosure lag is relatively long. Third, in case of a major innovation, our equilibrium implies under-investment, which requires a substantial public intervention in favor of the investment activity.

Keywords: R&D; knowledge spillover; oligopoly; first-mover advantage (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Working Paper: First mover advantage in a dynamic duopoly with spillover (2009)
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DOI: 10.2202/1935-1704.1658

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