Optimal R&D Investment Strategies with Quantity Competition under the Threat of Superior Entry

Ruslan Lukach, Peter Kort and Joseph Plasmans ()

No 1385, CESifo Working Paper Series from CESifo

Abstract: This paper studies R&D investment decisions of a firm facing the threat of new technology entry and subject to technical uncertainty. We distinguish four scenarios: inevitable entry, entry deterrence, entry blockade, and non-credible entry threat. The entry threat stimulates the incumbent to innovate in case entry prevention is possible, but discourages R&D if entry is inevitable. In the case of entry deterrence the incumbent successfully prevents entry by innovating. Greater technical uncertainty stimulates starting R&D and can result in implementation of more expensive research projects. The welfare analysis shows that the relation between welfare and entry cost and between welfare and uncertainty is non-monotonic.

Keywords: investment under uncertainty; real options; R&D; competition (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-com and nep-ent
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Working Paper: Optimal R&D Investment Strategies with Quantity Competition under the Threat of Superior Entry (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1385

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