A Stochastic Competitive R&D Race Where “Winner Takes All”

Pelin G. Canbolat (), Boaz Golany (), Inbal Mund () and Uriel G. Rothblum
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Pelin G. Canbolat: Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel
Boaz Golany: Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel
Inbal Mund: Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa 32000, Israel
Uriel G. Rothblum: Formerly with Faculty of Industrial Engineering and Management, The Technion--Israel Institute of Technology, Haifa, Israel

Operations Research, 2012, vol. 60, issue 3, 700-715

Abstract: The paper considers a race among multiple firms that compete over the development of a product. The first firm to complete the development gains a reward, whereas the other firms gain nothing. Each firm decides how much to invest in developing the product, and the time it completes the development is a random variable that depends on the investment level. The paper provides a method for explicitly computing a unique Nash equilibrium, parametrically in the interest rate; for a given interest rate, the Nash equilibrium is determined in time that is linear in the number of firms. The structure of the solution yields insights about the behavior of the participants. Furthermore, an explicit expression for a unique globally optimal solution is obtained and compared to the unique Nash equilibrium.

Keywords: R&D race; Nash equilibria; global optimality; resource allocation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:60:y:2012:i:3:p:700-715

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