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A strategic investment game with endogenous absorptive capacity

Hammerschmidt, Anna (2006) A strategic investment game with endogenous absorptive capacity. Department of Economics Working Paper Series, 92. Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.

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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. (author's abstract)

Item Type: Paper
Keywords: R&D spillovers / absorptive capacity / strategic investment game
Classification Codes: RVK QC 344, QC 131 ; JEL O31, L13, C72
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 16 May 2006 14:39
Last Modified: 30 Jul 2015 19:44
URI: http://epub.wu.ac.at/id/eprint/106

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