This paper analyzes the impact of a future RandD race on current firm behavior in the product market. It is shown that, in order to “soften” rivals in the future RandD race, firms behave less aggressively in the pre-innovation product market than in the standard duopoly models. As a result, the RandD rates are lower than what firms would choose if standard duopoly outcomes are assumed. RandD cooperation is shown to be capable of restoring the duopoly outcome.
- R and D rivalry
- product market competition