Dynamic Patent Races with Risky Choices

Jaesun Park
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Jaesun Park: College of Business Administration, University of North Dakota, Grand Forks, North Dakota 58202

Management Science, 1987, vol. 33, issue 12, 1563-1571

Abstract: This paper investigates equilibrium R&D investment strategies of firms endowed with different innovation potentials. To address this issue, this paper permits two stages of innovation and develops a simple stochastic game model involving two firms. It is shown that in equilibrium, a leader in the multiple stage innovation game invests more than a follower; firms compete more vigorously in the later stages of innovation than in the earlier stages; and a follower is more likely to choose a riskier innovation path than one requiring, on average, equivalent effort. It provides an explanation of how the expected benefits, the cost of R&D, and interactions between competing firms combine to determine dynamic R&D strategies over time.

Keywords: research and development; game theory; Nash equilibrium; risky choice (search for similar items in EconPapers)
Date: 1987
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