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R&D Competition with Asymmetric Firms
Scottish Journal of Political Economy (1996)
  • Joanna Poyago-Theotoky, Loughborough University

This paper considers a non-tournament duopoly model of process innovation. Costs of production can be reduced by firms spending on R&D. Firms are asymmetric in the sense that they may differ in their initial costs of production. It is shown that the high-cost firm may spend more (or less) in R&D than its low cost rival. This main result is dependent on the relative magnitude of two important forces: the incentive effect, whereby the low-cost firm always has a stronger incentive to spend on cost-reducing R&D, and the effectiveness factor, which favours the high-cost firm.

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Citation Information
Joanna Poyago-Theotoky. "R&D Competition with Asymmetric Firms" Scottish Journal of Political Economy Vol. 43 Iss. 3 (1996)
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