Template-Type: ReDIF-Paper 1.0
Author-Name: Gianluca Femminis
Author-X-Name-First: Gianluca
Author-X-Name-Last: Femminis
Author-Email: gianluca.femminis@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica
Author-Name: Gianmaria Martini
Author-X-Name-First: Gianmaria
Author-X-Name-Last: Martini
Author-Email: gianmaria.martini@unibg.it
Author-Workplace-Name: Università di Bergamo
Title:  First mover advantage in a dynamic duopoly with spillover
Abstract:  We present a dynamic duopoly model of technical innovation where R&D costs decrease exogenously with time, and inter-firm knowledge spillover lowers the second comer's R&D cost. The spillover effect only becomes available after a disclosure lag. These features allow us to identify a new type of equilibrium: the leader delays investment until the R&D cost is low enough that the follower finds it optimal to invest as soon as he can benefit from the spillover. This equilibrium is subgame perfect over a wide range of parameters, and raises several interesting implications. First, in our new equilibrium the time delay between the two R&D investments is realistically short. Second, while the presence of a spillover favors the second mover, this benefit is not enough to rule out a first mover advantage. Indeed, the first mover advantage survives whenever technical progress is sufficiently fast and the disclosure lag is relatively long. Third, in case of a major innovation our equilibrium implies under--investment, which requires a substantial public intervention in favour of the investment activity.
Length:  41 pages
Creation-Date:  2009-07
Publication-Status: none
File-URL: http://www.unicatt.it/Istituti/TeoriaEconomica/Quaderni/itemq0955.pdf
File-Format: Application/pdf
File-Function: First version, 2009
Number: itemq0955
Classification-JEL: L13, L41, O33
Keywords: R&D, knowledge spillover, dynamic oligopoly
Handle: RePEc:ctc:serie6:itemq0955