Monday, May 28, 2018
Thomas Grebel (Technische Universität Ilmenau, Germany) and Lionel Nesta (Université Côte d'Azur) examine Technological Spillovers, Product Market Rivalry and R&D Investment.
ABSTRACT: We investigate the determinants of the sign of R&D reaction functions of two rival firms. Using a two-stage Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results corroborate the validity of the theoretical model.