Project choice and risk in R&D

We introduce stochastic R&D in the Hotelling model and show that if the technical risk is sufficiently high, all firms focus on the most valuable market segment. We then endogenize technical risk by allowing firms to choose between a safe and a risky R&D technology. Firms either both target...

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Bibliographic Details
Published inThe Journal of industrial economics Vol. LIII; no. 1; pp. 53 - 81
Main Authors Gerlach, Heiko A, Rønde, Thomas, Stahl, Konrad
Format Journal Article
LanguageEnglish
Published 01.03.2005
Subjects
Competition
Game theory
Industrial economics
Market entry
Methodology
Research and development
Risk
Spillovers
Stochastic models
Technology
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Summary:We introduce stochastic R&D in the Hotelling model and show that if the technical risk is sufficiently high, all firms focus on the most valuable market segment. We then endogenize technical risk by allowing firms to choose between a safe and a risky R&D technology. Firms either both target the most attractive market with at least one firm using the risky technology or they choose different niche projects and both apply the safe technology. R&D spillovers lead to more differentiated R&D projects and patent protection to less. Project coordination within an RJV implies more differentiation, and may be welfare-improving. Reprinted by permission of Blackwell Publishers
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SourceType-Scholarly Journals-1
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ISSN:0022-1821