R&D Investments with Competitive Interactions

Kristian R. Miltersen and Eduardo S. Schwartz

No 10258, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this article we develop a model to analyze patent-protected R&D investment projects when there is (imperfect) competition in the development and marketing of the resulting product. The competitive interactions that occur substantially complicate the solution of the problem since the decision maker has to take into account not only the factors that affect her/his own decisions, but also the factors that affect the decisions of the other investors. The real options framework utilized to deal with investments under uncertainty is extended to incorporate the game theoretic concepts required to deal with these interactions. Implementation of the model shows that competition in R&D, in general, not only increases production and reduces prices, but also shortens the time of developing the product and increases the probability of a successful development. These benefits to society are countered by increased total investment costs in R&D and lower aggregate value of the R&D investment projects.

JEL-codes: G31 O32 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-cfn, nep-ino and nep-tid
Note: IO PR AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published as Miltersen, Kristian and Eduardo Schwartz. "R&D Investments With Competitive Interactions," Review of Finance, 2004, v8(3), 355-401.

Downloads: (external link)
http://www.nber.org/papers/w10258.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10258

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10258

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().