Two models of R&D competition in duopoly : two markets with budget constraints and dynamics.

• Main Authors: Li, Siwei., Quan, Jun., Xu, Han.
• Other Authors: School of Humanities and Social Sciences
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences::Economic theory::Microeconomics
• Online Access: http://hdl.handle.net/10356/48715
• Institution: Nanyang Technological University

Over the last few decades, research and development (R&D) has played an important role in the growth of global economy. While many R&D papers focus on R&D spillovers, few investigate the R&D spending strategy from a firm’s point of view. In this paper, we aim to formulate a competitive model of firm’s decision-making that explains the mechanism by which the firm should decide its optimal amount of investment to R&D markets. Through a micro-founded approach, we discuss R&D investment from the firm’s perspective. Analytical models are constructed by modifying some existing game theory models. By discussing both the static case for a one-time competition and the dynamic case where companies compete over continuous time periods; this paper explores the investment strategies of duopoly firms while both compete in R&D in up to two markets. Our results suggest that firms should invest more when the payoff is higher and when it has a higher chance of winning. It is also suggested that “stronger” firm needs to keep investing more to maintain its advantage.