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Spillovers, Disclosure Lags, and Incentives to Innovate: Do Oligopolies Over-Invest in R&D?

Author

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  • Gianluca Femminis

    (Universita' Cattolica di Milano)

  • Gianmaria Martini

    (Universita' di Bergamo)

Abstract
We develop a dynamic duopoly, in which firms have to take into account a technological externality, which reduces their innovation costs over time, and an inter-firm spillover, which lowers only the second comer’s R&D costs. This spillover exerts its effect after a disclosure lag. We identify three possible equilibria, which are classified according to the timing of R&D investments, as early, intermediate, and late. The intermediate equilibrium is subgame perfect for a wide parameter range. When the size of the innovation is large, it implies under-investment. Hence, even in the presence of a moderate degree of inter-firm spillover, the competitive equilibrium calls for public policies aimed at increasing the research activity. Focusing on minor innovations – the case in which according to earlier literature the market outcome implies sub-optimal investment levels – our results imply that policies aimed at stimulating R&D have to be less sizeable than suggested before.

Suggested Citation

  • Gianluca Femminis & Gianmaria Martini, 2010. "Spillovers, Disclosure Lags, and Incentives to Innovate: Do Oligopolies Over-Invest in R&D?," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(1), pages 47-76.
    • Handle: RePEc:vep:journl:y:2010:v:118:i:1:p:47-76
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    Cited by:

    1. Enrico Bellino, 2012. "Pasinetti on Ricardo," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1258, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Gianluca Femminis, 2019. "Risk aversion heterogeneity and the investment–uncertainty relationship," Journal of Economics, Springer, vol. 127(3), pages 223-264, August.
    3. Stefano Colombo & Luigi Filippini, 2012. "Product innovation and logistic optimization in a novel urban-type model," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1259, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    4. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    5. Gianluca Femminis & Gianmaria Martini, 2008. "Irreversible R&D investment with inter-firm spillovers," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi compila la segreteria, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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    More about this item

    Keywords

    R&D; Knowledge spillover; Dynamic oligopoly;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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