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A two-stage model of research and development with endogenous second-mover advantages

Reinganum, Jennifer F. (1985) A two-stage model of research and development with endogenous second-mover advantages. International Journal of Industrial Organization, 3 (3). pp. 275-292. ISSN 0167-7187. doi:10.1016/0167-7187(85)90024-4.

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This paper describes a simple two-stage model of research and development, in which the ‘winner’ of the research stage has the option of moving first in the development stage. Some unexpected results emerge: in equilibrium, the leader in the development stage invests less than each follower, and is consequently least likely to collect the patent. Moreover, the leader receives a lower expected payoff than each of the followers. Thus there are endogenous second-mover advantages. Using a game of timing (in which the identity of the Stackelberg leader is determined) to link the two stages, I find that firms face quite different incentives in the research stage. Although the leader invests less than each follower in the research stage as well, the leader enjoys higher expected revenue from the complete (two-stage) game than does each follower. The equilibrium is inefficient because there is a lag between the time at which research is completed and the time at which development is begun, and because aggregate investment is inefficiently (asymmetrically) distributed across firms.

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Additional Information:© 1985 Elsevier Science Publishers B.V. (North-Holland). Final version received January 1985. I would like to thank two anonymous referees for their careful reading and helpful comments. Formerly SSWP 479.
Issue or Number:3
Record Number:CaltechAUTHORS:20171115-150521628
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83237
Deposited By: Jacquelyn Bussone
Deposited On:15 Nov 2017 23:14
Last Modified:15 Nov 2021 19:56

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