a dynamic analysis of licensing the boomerang effect and grant back clauses this article develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on r d competition in the innovation market and to examine the rationale for often observed grant back clauses of particular concern are how the consideration of future competition distorts the licensing relationship and how the grant back clause can mitigate this distortion i also evaluate the validity of the casual antitrust argument that grant back clauses may adversely affect competition because they reduce the licensee s incentive to engage in r d and thereby limit rivalry in innovation markets

market structure and r d competition abstract r d is modelled as a random draw from a set of technologies for producing a homogeneous good it is shown that both a pure monopolist and bertrand oligopolists stop r d at technology levels which are less productive than is socially desirable with bertrand competition this reservation technology level is independent of the number of firms the effort per r d project depends in general on the market structure and total r d expenditures generated in markets are smaller than the social optimum

industry and firm specific factors of innovation novelty this article investigates the underlying factors that might shape the firm s choices with respect to degrees of innovation novelty using a sample of 2983 firms observed under the portuguese community innovation survey we assess the relative relevance of a set of firm and industry specific factors in explaining firms choices about incremental or radical innovation the results indicate that both the firm s idiosyncratic historical factors giving rise to heterogeneous r d capabilities and the industry context have power to shape the firm s innovation choices even though firm specific factors appear to be more powerful the estimated impacts on firm s innovation novelty are nonetheless significantly moderated by the type of firm and industry

arming in the global economy the importance of trade with enemies and friends abstract we analyze how trade openness matters for interstate conflict over productive resources our analysis features a terms of trade channel that makes security policies trade regime dependent specifically trade between two adversaries reduces each one s incentive to arm given the opponent s arming if these countries have a sufficiently similar mix of initial resource endowments greater trade openness brings with it a reduction in resources diverted to conflict and thus wasted as well as the familiar gains from trade although a move to trade can otherwise induce greater arming by one country and thus need not be welfare improving for both aggregate arming falls by contrast when the two adversaries do not trade with each other but instead trade with a third friendly country a move from autarky to trade intensifies conflict between the two adversaries inducing greater arming with data from the years surrounding the end of the cold war we exploit the contrasting implications of trade costs between enemies versus trade costs between friends to provide some suggestive evidence in support of the theory

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

an empirical test of the asymmetric models on innovative activity who invests more into r d the incumbent or the challenger the theoretical discussion concerning the question whether the incumbent or the potential entrant invests more into r d has attracted considerable interest this paper reports the results of an empirical study on this question using data of about 3500 german firms over the years 1992 to 1995 the survey explicitly asks the firms for their motives to undertake innovative activity it is thus possible to take account of intended not just completed market entry it turns out that the challenger invests more into r d in order to enter a new market than the incumbent thus the patent racing model by reinganum and others seems to characterize innovative activity more accurately than the competing auction model of gilbert and newbery we use a heteroscedastic tobit as well as a tobit model with selectivity in order to deal with the econometric problems of double censoring

a patent race in a real options setting investment strategy valuation capm beta and return volatility abstract in this paper we study financial properties of r d intensive firms through a continuous time real options patent race model numerical analysis in this study shows that intense competition drives a firm to invest more aggressively which then pushes up its cost of capital and return volatility while introducing negative return correlation with its competitor furthermore we find that a firm s position in competition has important impacts on its financial properties for instance a firm s cost of capital is a non monotonic function of its relative position in the race in addition the relationship between cash flow uncertainty and investment can be negative when a firm is far ahead or far behind or positive when firms are close in the race

a general model of r d competition and policy this article constructs a model of r d with heterogeneous firms each firm s probability of success is a function of its sunk and recurrent r d expenditures the social gains from an innovation are not fully captured by the successful firm the comparison of the social optimum and the market equilibrium involves balancing spillover and crowding effects pigovian corrective policies as well as strategic policies for a subset of colluding firms are discussed

a perpetual race to stay ahead this paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity the state of competition measured by the difference between the number of innovations introduced by the firms evolves stochastically according to their effort level the structure of markov perfect equilibria is identified it is generally not true that competition is fiercest when firms are closest rather firms invest under two distinct circumstances while sufficiently ahead to outstrip their rival and secure a durable leadership while behind to regain leadership and prevent the situation from worsening to the point where their rival outstrips them industry such a market structure cannot be adequately modelled by a repeated game since history obviously affects market opportunities more precisely previous outcomes determine the range of available actions and pay offs economists have thus resorted to the study of races to gain insights into the strategic issues raised by such competition with the notable exceptions of aoki 1991 harris 1991 and budd harris and vickers 1993 most of the literature has analysed formal races displaying exogenous finishing lines or deadlines as well as final prizes and rewards and the corresponding results rely on backward induction however such assumptions do not seem to capture accurately the essential features of many markets often the rivalry only ends if at all when one of the competitors withdraws so that the deadline should be endogenized moreover benefits and losses are continuously collected additionally the emerging empirical literature on races stresses the inadequacy of standard models and the need to model r d as a race with multiple prizes in the words of cockburn and henderson 1994 our finding that the modern game theoretic literature is of only limited usefulness as an empirical guide points to the need to model r d as a race with multiple prizes the model analysed in this paper is an attempt to offer an adequate framework for this type of dynamic competition the stochastic evolution of the state of competition between two firms depends on their respective effort levels the state of competition is measured by the

r d who does the r who does the d abstract this paper examines the determinants of the allocation of national r d resources between research and development activities we derive conditions under which a firm being outdistanced by a foreign rival in a two stage international patent race would drop out and relate those conditions to home market size and to the race s cost and risk characteristics because of this discouragement effect firms located in smaller markets appear as if they were on average less successful in transforming research expertise into commercial product development we also show that in a two sector model r and d the proportion of r d resources going into product development as opposed to research increases with country size moreover starting from a symmetric game and increasing the size of one country induces the opposite effect on other countries a shift of r d resources from development to research through strategic interaction among research teams

preemption in r d races abstract fudenberg gilbert stiglitz and tirole 1983 consider a patent race in which each firm s instantaneous probability of discovering a patentable invention is an increasing function of its cumulative expenditure on rd in particular we show that for intermediate values of it is possible for the follower to spoil the race by forcing the leader to drop out

patents imitation and licensing in an asymmetric dynamic r d race abstract rd some may have an advantage in early stages of the r d process while others may have advantages in other stages of the process this paper uses a two firm asymmetric ability multistage r d race model to analyze the effect of patents imitations and licensing arrangements on the speed of innovation firm value and consumers surplus by using numerical analyses to study the mpe of the r d race the paper demonstrates the circumstances under which a weak patent protection regime that facilitates free imitation of any intermediate technology may yield a higher consumers surplus and total surplus than a regime that awards a patent for the final innovation the advantage of imitation may hold even when we allow for voluntary licensing of intermediate technologies

process innovation activity in a mixed oligopoly the role of cooperatives this article develops a sequential game theoretic model of heterogeneous producers to examine the market and welfare effects of cooperative involvement in process innovation activity in the agricultural sector the analysis examines an open membership input supplying cooperative co op that maximizes member welfare and finances its innovation activity through retained earnings analytical results show that the presence of the co op can increase the arrival rate of innovations while reducing the price of agricultural inputs cooperative involvement in innovation activity can thus be welfare enhancing and socially desirable with its effectiveness being determined by the degree of producer heterogeneity and the size of innovation costs

optimal disclosure delay in multistage r d competition abstract this paper analyzes the effects of a policy of disclosure with delay on the speed of discovery and incentives to invest in a multi stage patent race depending on the parameters four equilibrium configurations are obtained in the first a single firm acts as a monopolist in the second a single firm invests at the initial stages but the second firm joins the race after the disclosure of the intermediate product in the third both firms invest when they have equal knowledge but only the leader invests before the disclosure of the intermediate product in the last configuration firms always compete except when the disclosure date is close the determination of the optimal disclosure delay involves a trade off between the incentives to invest and the expected time of discovery of the final product

firm asymmetries and sequential r d theory and evidence from the mainframe computer industry we incorporate strategic considerations into the analysis of a problem that has hitherto been treated in a decision theoretic fashion the allocation of scarce r d resources when r d proceeds in stages in doing so we formalize a notion of system complexity and investigate its implications for the allocation of these scarce resources using detailed data from fieldwork at all mainframe manufacturers in the world to investigate our theoretical predictions we provide evidence that larger market share firms set more aggressive stage targets as do more resource rich firms our results can be seen as a verification of the mechanism underlying arrow s replacement effect

technology ladders and r d in dynamic cournot markets abstract motivated by dramatic and unpredictable technological advances in energy production for instance drilling and extraction of shale oil we extend cournot models of competition to incorporate research and development rd for example the potential of future monopoly can spur r d investment now even if the firm is presently uncompetitive and not actively producing we also show that surprisingly random innovations have an ambiguous effect on r d this feature which is driven by the cournot framework contrasts with the common situation whereby uncertainty lowers innovation and delays r d investments finally we demonstrate that increased competition may actually increase efforts to innovate through higher desire to achieve dominance this would match the anecdotal evidence that the threat of market entrants forces incumbents to maintain high r d

dynamic patent races with risky choices this paper investigates equilibrium rd firms compete more vigorously in the later stages of innovation than in the earlier stages and a follower is more likely to choose a riskier innovation path than one requiring on average equivalent effort it provides an explanation of how the expected benefits the cost of r d and interactions between competing firms combine to determine dynamic r d strategies over time

dropout behavior in r d races with learning we examine a game theoretic model of a two firm r d race in which expenditures on r d and the concomitant increase in experience learning enable thefirms to increase their probability of discovering an invention the learning process is stochastic it generates a unique subgame perfect equilibrium for identicalfirms with the characteristic that the leader never drops out but the follower drops out if the leader gains a significant lead the leader can find it optimal to drop out if the firms value the invention differently or have different r d efficiencies thus our analysis generates results between vigorous competition and natural monopoly central to schumpeter s 1934 vision of entrepreneurship are the extraordinary profits associated with innovation the lure of these profits fuels the fires of creative destruction as innovators replace declining firms this article analyzes the competition for the profits obtained by bringing an innovation to fruition and receiving the associated patent we restrict attention to the subclass of innovations known as inventions innovations that are the product of a firm s research and development in particular we are concerned with the conditions that cause a firm after having invested in r d to drop out of the competitive race situations in which the leading firm drops out are of even greater interest competition in r d is often modelled as a race in which the winner receives a patent and reaps most or all of the benefits of the invention as exemplified by kamien and schwartz 1972 the early theoretical literature tended to be based on decision theoretic models the firm seeks an optimal rate of expenditure on r d determined in part by the expected value of the invention the extent of the first mover advantage the economies or diseconomies of scale in r d and the perceived intensity of rivalry it is not anticipated that the firm s decisions will affect the r d efforts of the perhaps unknown rivals kamien and schwartz 1982 p 124 show that the firm does no research if rivalry is sufficiently intense because their model is static however it is never the case that a firm enters the race and then drops out

racing with uncertainty a patent race experiment this paper presents an experimental test of the multi stage patent race model of harris and vickers rev econ stud 54 1987 1 tied competitors invested more when nearer the end of the race but this may have followed from a more general and unexplained pattern of a positive correlation between investment and progress in the race the relationship between investment and gap between competitors was mostly not as predicted also leaders did not invest more than not heavily lagging followers and the race did not approach monopoly as the gap between competitors widened overall the evidence brings only limited support to the theory

cost reducing r d in oligopoly abstract this paper provides a conjectural variations model to explore competition in cost reducing r d and the nature of the inter firm externalities it is shown that 1 r d investment in a market with price competition becomes optimal if firms expect that changes in their own r d investment are followed by the rival firms 2 the optimal r d subsidies are positive in collusive oligopolies but negative in competitive oligopolies 3 joint r d ventures in oligopoly could reduce total surplus by causing underinvestment and 4 promoting price competition reduces welfare if firms are not collusive in their r d decisions

the impact of r d cooperations and mergers in pharmaceuticals on research activities and drugs offered on the market in the last 10 years the pharmaceutical industry has experienced steep unprecedented price increases which are frequently attributed to increasing drug development costs to cope with rocketing development costs companies engage in research and development r d cooperations we study the impact of r d cooperations on firms research activities and drugs offered on the market using a comprehensive dataset we find that r d cooperations formed at the early stage of the drug development process increase the number of r d projects and the number of drugs offered on the market late stage r d cooperations formed among larger firms in technology and product markets increase firms research activities but reduce the number of drugs launched on the product market results suggest that large firms cooperating in the late research stage re optimize their r d pipelines and eliminate similarly aligned research projects

mature or emerging markets competitive duopoly investment decisions abstract we develop a competitive investment model wherein two competing firms consider investing into two projects targeting separately a mature and an emerging market the returns firms obtain from investments into these markets are assumed to follow an s shaped curve and depend on both firms actions considering symmetric environments in terms of investment opportunities we find that different forms of interactions may arise e g prisoner s dilemma and game of chicken and outline corresponding strategies that offer higher returns by exploiting first mover advantages cooperation opportunities and aggressive choices we also discuss the market conditions that can lead to these outcomes finally considering non symmetric environments we show that a firm may be better off when its competitor s budget increases

the economics of product patents this paper develops a model of product patents in which the patent changes the nature of market entry behavior rather than preventing entry entirely the model incorporates three levels of action namely the innovator s patenting decision the potential entrant s location decision and possible court action the analysis demonstrates how the characteristics of the patents system and the enforcement framework can influence rivals variety choices and thus the market equilibrium it also considers how the system can in principle be adjusted to improve social welfare copyright 1990 by american economic association

technology policy and the organization of r d abstract in this study we examine how technology policy in the form of r d subsidies and encouragement of research joint ventures rjvs affects the investment incentives of firms in various types of imperfectly competitive markets we find that joint ventures yield lower research intensities in the absence of subsidies in the presence of optimal subsidy policy higher expected welfare is obtained with rjvs but the optimal policy may also involve a more costly subsidy program the analysis also identifies possible difficulties in implementing socially optimal policies arising from private incentives conflicting with the public interest

arms races and arms control modeling the hawk perspective of the three major theories developed by post world war 11 american social science to explain arms races the repeated prisoner s dilemma the spiral model and the deterrence model the deterrence model has received the least attention from game theorists i present a model of this perspective and discuss its implications for arms racing and armscontrol theory arms races arise in the model when there is a conflict of interest between two states and uncertainty about the ability of at least one side to bear the strains of increased military spending the model provides support for two common critiques of arms control first arms control is difficult to achieve when it is most needed when there is a dispute accompanied by uncertainty that could lead to war second arms races though they occur in times of tension do not necessarily increase the likelihood of war and may even reduce it by reducing uncertainty about relative power

research vs development optimal patenting policy in a three stage model abstract to produce a new product process firms have to go through two distinct stages research discontinuous and stochastic a prototype is a success failure with probability p 1 p development is non stochastic and continuous quality improvements being a concave deterministic function of development inputs the paper shows how patent policy affects market structure and welfare under a single patent regime granting patents to research prototypes is unambiguously welfare improving whereas under a multiple patent regime granting protection only to developed products processes may be more beneficial in so far as it reduces entry which tends to be excessive under the prototype protection regime

dynamic r d competition the authors study a simple two stage stochastic patent race involving two firms they examine the behavior of the participants as they gain the lead or fall behind in the race the authors find that the leader engages in rd 2 a policy of issuing patents for intermediate research results and 3 the effects of research joint ventures whereby the firms coordinate their initial research efforts and share their results copyright 1987 by royal economic society

simultaneous signaling through investment in an r d game with private information abstract we analyze an r d game of two sided incomplete information in which firms can invest in cost reducing technology before engaging in cournot competition investment is observable but r d outcomes are not we focus on partial pooling equilibria in which high cost firms mimic the strategy of low cost firms resulting in under investment in equilibrium these equilibria generally involve mixed strategies with the novel feature that players are not indifferent among their mixed strategies due to the beliefs and subsequent actions they induce further results suggest that firms may be willing to pay to keep their r d outcomes concealed

the tradeoff between performance and quitting in high power tournaments tournaments may be characterized by the performance they induce as well as by the rate of quitting and dropouts of participants although most of the attention in the literature is on the performance induced by high power incentives there are many daily situations in which dropouts and quitting are a major concern using a field experiment in schools and a model of dynamic tournament we examine the effect of different levels of rewards on the rate of quitting our experiment indicates that there is a possible tradeoff between performance and quitting strong incentives tournaments induced participants to exert more effort and exhibit a better performance but at the same time it induces a higher rate of quitting we present a multi stage tournament model that gives rise to a similar characterization jel c93 c73 d8 j30