Innovation and imitation incentives in dynamic duopoly

Etienne Billette de Villemeur, Richard Ruble and Bruno Versaevel

MPRA Paper from University Library of Munich, Germany

Abstract: We study entry in a growing market by ex-ante symmetric duopolists when sunk costs differ for the innovating and imitating firm. Strategic competition takes the form either of a preemption race or of a war of attrition, the latter being likelier when demand uncertainty is high. Industry value is maximized when firms seek neither to race nor to delay investment. Free imitation is socially costly, and if the consumer surplus resulting from imitation is not too large the socially optimal imitation cost, as may be induced by patent protection, involves preemption. Finally, we discuss endogenous entry barriers and contractual alternatives that increase the likelihood of preemption regimes, with differing implications for imitator entry. When the cost of imitation is low for instance, innovators are shown to rely more heavily on trade secrecy and patents. Welfare-enhancing takeovers and licensing are also shown to occur.

Keywords: Dynamic oligopoly; Knowledge spillover; Real options (search for similar items in EconPapers)
JEL-codes: G31 L13 O33 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-ino
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https://mpra.ub.uni-muenchen.de/59453/1/MPRA_paper_59453.pdf original version (application/pdf)

Related works:
Working Paper: Innovation and Imitation Incentives in Dynamic Duopoly (2015)
Working Paper: Innovation and Imitation Incentives in Dynamic Duopoly (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59453

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