Market and Technical Risk in R&D

Konrad Stahl, Heiko Gerlach and Rønde, Thomas

No 3450, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We endogenize the market risk (at given technical risk) in firms? R&D decisions by introducing stochastic R&D in the Hotelling model. It is shown that if the technical risk is sufficiently high, the market risk remains low even if firms pursue similar projects. This leads firms to focus on the most valuable market segment. We then also endogenize technical risk by allowing firms to choose their R&D technology. In equilibrium, firms either pursue similar (different) R&D projects with risky (safe) technologies or they choose the same project but apply different R&D technologies. We show that R&D spillovers lead to more differentiated R&D efforts and patent protection to less. Project coordination within a RJV implies more differentiation, and may, or may not be welfare-improving.

Keywords: Market risk; Technical risk; R&d project choice (search for similar items in EconPapers)
JEL-codes: D81 L13 O32 (search for similar items in EconPapers)
Date: 2002-07
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