Firms' R&D decisions under incomplete information |
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Institution: | 1. Department of Statistics and Operational Research, Universitat Politècnica de Catalunya, Barcelona Tech. Jordi Girona 1-3, Barcelona 08034, Spain;2. IMUS and Faculty of Mathematics, Universidad de Sevilla, Seville 41012, Spain;3. Facoltà di Economia, Università degli Studi Niccolò Cusano, Roma - 00166 Roma, Italy |
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Abstract: | The paper considers a patent race in which firms do not know their relative positions. In this setting, firms that start in the same position proceed at the highest possible speed; and if one firm has an initial advantage it preempts the rival, but at the cost of dissipating a significant part of its monopoly rent. So the paper shows that incomplete information in a patent race leads to rent dissipation. The latter is higher, the higher the value of the prize and the lower the cost of R&D. Thus, for innovations that provide relatively high profits the time to discovery is shortened, but the social losses are likely to be high, due to duplication of effort. |
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