Asymmetric Spillovers and Investments in Research and Development of Leaders and Followers

Abstract

The focus of this paper is on the incentives of firms to invest in research and development (R&D) when sequential moves are taken into account. Leading firms move before followers in investment and in output choices in a four stage game setting. Leaders may compete or cooperate in R&D with other leaders, given that followers compete. Followers may compete or cooperate in R&D with other followers given that leaders compete. There may be spillovers between leaders and between followers and also between these two groups of players. Due to the complexity of the model, results are obtained by numerical simulations. The impact of symmetric spillovers is similar but not identical to the tendencies in two stage models with simultaneous R&D moves. A relatively wide set of circumstances is identified where followers tend to invest more than leaders. Critical spillover values are identified that drive the effects of cooperation in R&D as is the case in simpler settings. Situations are detailed, where consumer surplus and static welfare are best served by cooperation of followers rather than cooperation of leaders.Cost-reducing R&D, Sequential game, Cooperation, Asymmetric spillovers, Asymmetric spillovers, JEL Classification , D72, D43, L13,

Reflections on the Relation Between Competition and Innovation

“…Extensions to three or four stage models have been dealt with in the literature (a.o. Amir et al (2000), Amir and Wooders (1999), Halmenschlager (2004), De Bondt and Henriques (1995) and Vandekerckhove and De Bondt (2008)). However, in this paper, the analysis is limited to the competition-R&D relations in the traditional two stage models.…”

Absorptive capacity, efficiency effect and competitors’ spillovers

“…They also support theoretical considerations which insist on the importance of active imitation strategies among learning competitors with asymmetric spillovers (Nelson and Winter 1982;Eeckhout and Jovanovic 2002;Ceccagnoli 2005;Vandekerckhove and De Bondt 2008) where laggards, non innovators or firms without R&D, learn from other firms, especially from competitors closer to cutting-edge technological development.…”

“…When an asymmetric view of knowledge spillovers among competitors is adopted, "technological leaders have less to learn from others than followers do" (Eeckhout and Jovanovic 2002). An increase in knowledge spillovers from leaders to followers tends to have the usual discouraging effects on competing leaders, but also induces a decrease in followers' R&D investment when one-way outgoing spillovers from leaders to followers are high and spillovers among competing leaders are low (Vandekerckhove and De Bondt 2008). In such a framework, it is interesting to note that lagging firms can choose to be pure imitators (See also Nelson and Winter 1982).…”

In Search of Lost Disincentive Effects from Intra-Industry Spillovers

“…When an asymmetric view of knowledge spillovers among competitors is adopted, "technological leaders have less to learn from others than followers do" (Eeckout and Jovanovitch 2002). An increase in knowledge spillovers from leaders to followers tends to have the usual discouraging effect on competing leaders but also induces a decrease in followers' R&D investment when one-way outgoing spillovers from leaders to followers are high and spillovers among competing leaders are low (Vandekerckhove and De Bondt 2008). In such a framework, it is interesting to note that lagging firms can choose to be pure imitators (See also Nelson and Winter 1982).…”