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Investment in Risky Innovations with Multiple Innovators

Anthony Creane

Working Papers from Michigan State - Econometrics and Economic Theory

Abstract: Consider a market in which firms compete to develop a new product. While most work focuses on a single firm successfully developing the new product, the emphasis here is on possibly multiple firms devloping the new product. Thus, a firm has uncertainty about how many competitors it will face as well as whether it will succed. The results suggest that this uncertainty about how many firms will succeed promotes under-investment, but that the well-konown entry inefficiency under certainty (Mankiw and Whnston) promotes over-investment.

Keywords: COMPETITION; PRODUCTION; INVESTMENTS (search for similar items in EconPapers)
JEL-codes: L20 L22 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1998
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