Relative Performance and R&D Competition
ISER Discussion Paper No. 752
20 Pages Posted: 28 Aug 2009
Date Written: August 26, 2009
This paper formulates a duopoly model in which firms care about relative profits as well as their own profits. Our purpose is to investigate the relationship between the weight of relative performance and R&D expenditure. We find a non-monotone relationship between the weight of relative performance in their objectives and their R&D levels. Both highly reciprocal (altruism) and negative reciprocal attitudes yield high levels of R&D, while the intermediate situations yield low levels of R&D.
Keywords: relative profit, innovation, spite, altruism
JEL Classification: L21, O31, L13
Suggested Citation: Suggested Citation