Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18749
Authors: 
Lukach, Ruslan
Kort, Peter M.
Plasmans, Joseph
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper 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

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