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Dynamic R&D competition under uncertainty and strategic disclosure

Yangbo Song and Mofei Zhao

Journal of Economic Behavior & Organization, 2021, vol. 181, issue C, 169-210

Abstract: We study a dynamic two-stage R&D competition with unknown difficulty of the first stage and a reward for declaring the success in each stage. A competing firm can choose whether and when to disclose the solution to the first stage, as well as whether and when to quit. We characterize the unique equilibrium for homogeneous firms, which always exhibits a disclose-withhold-exit pattern as time evolves. In terms of social welfare, a competition is not always optimal: when research costs are high, it is socially more desirable to assign the project to a single firm. When firms are heterogeneous, a cost advantage always leads to an information advantage while a research ability advantage may generate opposite outcomes.

Keywords: R&D competition; Uncertainty; Strategic disclosure (search for similar items in EconPapers)
JEL-codes: D83 L13 O31 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jebo.2020.11.033

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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Handle: RePEc:eee:jeborg:v:181:y:2021:i:c:p:169-210