Title : Endogenous heterogeneity in duopoly with deterministic one-way spillovers
Author(s) : Adriana Gama, Isabelle Maret, Virginie Masson
Abstract : This paper examines the standard symmetric two-period R&D duopoly model, but with a deterministic one-way spillover structure. Though the two firms are ex-ante identical, one obtains a unique pair of asymmetric equilibria of R&D investments, leading to inter-firm heterogeneity in the industry, in R&D roles as well as in unit costs. We analyze the impact of a change in the spillover parameter and R&D costs on firms’ levels of R&D and profits. We find that higher spillovers need not lead to lower R&D investments for both firms. In addition, equilibrium profits may improve due to the presence of spillovers, and it may be advantageous to be the R&D imitator rather than the R&D innovator.
Key-words : One-way Spillovers, asymmetric R&D equilibria, R&D and interfirm heterogeneity, symmetry-breaking.
JEL Classification : D45, L10, C72