R&D Investments with Competitive Interactions / Kristian R. Miltersen, Eduardo S. Schwartz.

Format:

Book

Author/Creator:

Miltersen, Kristian R.

Contributor:

National Bureau of Economic Research.

Schwartz, Eduardo S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10258.

NBER working paper series no. w10258

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

February 2004.