Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
A strategic investment game with endogenous absorptive capacity.
Abstract: R&D plays a dual role: First, it generates new knowledge
and second, it develops a firm's absorptive capacity. Most of the existing
strategic investment game models neglect, however, the second role of R&D.
The aim of this paper is to incorporate the absorptive capacity hypothesis
in such a model by endogenizing the spillover. A two-stage game is
established and subsequently solved, looking for the subgame perfect Nash
equilibria. Considering the comparative static properties of the model as
well as the simulation results, a new effect appears: The "free-rider
effect" of the models with exogenous spillover, which deteriorates the
higher the spillover becomes, is now counteracted by the "absorptive
capacity effect". It is found that firms will invest more in R&D to
strengthen absorptive capacity when the spillover parameter is higher.
JEL-Codes: O31; L13; C72; (follow links to similar papers)
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