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Title:Optimal R&D investment strategies with quantity competition under the threat of superior entry PDF Logo
Authors:Lukach, Ruslan
Kort, Peter M.
Plasmans, Joseph
Issue Date:2005
Series/Report no.:CESifo working papers 1385
Abstract:This paper studies R&D investment decisions of a firm facing the threat of new technology entry and subject to technical uncertainty. We distinguish four scenarios: inevitable entry, entry deterrence, entry blockade, and non-credible entry threat. The entry threat stimulates the incumbent to innovate in case entry prevention is possible, but discourages R&D if entry is inevitable. In the case of entry deterrence the incumbent successfully prevents entry by innovating. Greater technical uncertainty stimulates starting R&D and can result in implementation of more expensive research projects. The welfare analysis shows that the relation between welfare and entry cost and between welfare and uncertainty is nonmonotonic.
Subjects:investment under uncertainty
real options
R&D
competition
JEL:D21
C72
O31
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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