Firm Heterogeneity, Imitation, and the Incentives for Cost Reducing R&D Effort

18 Pages Posted: 22 Mar 2005

See all articles by Marco Ceccagnoli

Marco Ceccagnoli

Scheller College of Business at Georgia Tech

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Abstract

I develop and test a model of strategic R&D investments where innovating and non-innovating firms compete on the basis of their ability to reduce costs and imitate rivals. I find that a larger proportion of non-innovating rivals stimulates cost-reducing investments and attenuates the disincentive effect of imitation by innovators on firm level R&D. Key model properties are verified by estimating the first order condition for the optimal choice of R&D, using the 1994 Carnegie Mellon survey of U.S. industrial R&D. Results also suggest that R&D and size are simultaneously determined, with R&D being proportional to size, as predicted by the theoretical model.

Suggested Citation

Ceccagnoli, Marco, Firm Heterogeneity, Imitation, and the Incentives for Cost Reducing R&D Effort. Journal of Industrial Economics, Vol. 53, No. 1, pp. 83-100, March 2005. Available at SSRN: https://ssrn.com/abstract=685171

Marco Ceccagnoli (Contact Author)

Scheller College of Business at Georgia Tech ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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