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Sequencing R&D decisions with a consumer-friendly firm and spillovers

Mariel Leal, Arturo Garcia and Sang-Ho Lee ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study considers a duopoly model in which both a consumer-friendly (CF) firm and a for-profit (FP) firm undertake cost-reducing R&D investments in an endogenous R\&D timing game and then play Cournot output competition. When the CF firm chooses its profit-oriented consumer-friendliness, we show that the consumer-friendliness is non-monotone in spillovers under both simultaneous-move and sequential-move with FP firm’s leadership while it is decreasing under sequential-move with CF firm’s leadership. We also show that a simultaneous-move outcome is a unique equilibrium when the spillovers are low and the CF firm invests higher R&D and obtains higher profits. When the spillovers are not low, two sequential-move outcomes appear and the CF firm might obtain lower profits with higher spillovers under the CF firm leadership.

Keywords: simultaneous R&D decisions; sequential R&D decisions; consumer-friendly firm; R&D spillovers (search for similar items in EconPapers)
JEL-codes: L21 M21 O32 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind and nep-mic
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