R&D Location Strategies

46 Pages Posted: 13 Nov 2019

See all articles by Luca Colombo

Luca Colombo

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics

Date Written: November 8, 2019

Abstract

We examine the profitability of different R&D location strategies of firms in a dynamic industry model. Firms engage in imitative and innovative activities in order to improve their products' quality, which determines their competitiveness. When choosing the set of locations in which to operate firms face a fundamental trade-off: co-locating with competitors' generates opportunities to improve product quality through imitation, but at the same time it increases the risk of losing one's competitive edge through outgoing spillovers. Being unable to fully predict competitors' moves, in making location choices firms rely on heuristics based on the expected present values associated with alternative location patterns. In a positive perspective, our model replicates key stylized facts highlighted in the pertinent empirical literature. On normative ground, we identify industry scenarios in which a firm should enter (not enter) a location even if the expected present value of doing so is negative (positive). Our key contribution is to provide a taxonomy of suitable firm location strategies depending on firm type and industry characteristics in a dynamic environment with endogenous cluster formation.

Keywords: Location Strategy, Knowledge Spillovers, Industry Dynamics, Innovation, Imitation

JEL Classification: C63, L13, O31

Suggested Citation

Colombo, Luca and Dawid, Herbert and Harting, Philipp, R&D Location Strategies (November 8, 2019). Bielefeld Working Papers in Economics and Management No. 10-2019, Available at SSRN: https://ssrn.com/abstract=3485429 or http://dx.doi.org/10.2139/ssrn.3485429

Luca Colombo (Contact Author)

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance ( email )

Largo Gemelli 1
20123 Milano
Italy

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics ( email )

Universitätsstraße 25
Bielefeld, 33615
Germany

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