Economic Theory

, Volume 44, Issue 3, pp 445–467 | Cite as

Understanding perpetual R&D races

  • Yves Breitmoser
  • Jonathan H. W. Tan
  • Daniel John Zizzo
Research Article

Abstract

This paper presents an experimental study of dynamic indefinite horizon R&D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine if we should expect technological competition, and if so whether it is sustained, or if the market converges into one with entrenched leadership and lower aggregate R&D. The subjects’ strategies are far less sensitive. In most of the treatments, the R&D races tend to converge to entrenched leadership. We propose and apply a quantal response extension of Markov perfection that is qualitatively and largely quantitatively consistent with the experimental observations.

Keywords

Markov quantal response equilibrium Race Experiment 

JEL Classification

C72 C91 O31 

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Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  • Yves Breitmoser
    • 1
  • Jonathan H. W. Tan
    • 2
  • Daniel John Zizzo
    • 3
  1. 1.Institute of MicroeconomicsEuropean University ViadrinaFrankfurt-OderGermany
  2. 2.Nottingham University Business SchoolUniversity of NottinghamNottinghamUK
  3. 3.School of Economics and ESRC Centre for Competition PolicyUniversity of East AngliaNorwichUK

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