Dynamic patent races with risky choices
Management Science
Optimal investment in development projects
Operations Research Letters
A Stochastic Competitive R&D Race Where “Winner Takes All”
Operations Research
| Hi-index | 0.00 |
In this paper we consider a stochastic R&D decision model for a single firm operating in a competitive environment. The study focuses on the firm's optimal policy which maximizes the expected discounted net return from the project. The firm's policy is composed of two ingredients: a stopping time which determines when the developed technology should be introduced and protected by a patent, and an investment strategy which specifies the expenditure rate throughout the R&D program. The main findings of the study are:(a)Under a constant expenditure rate strategy, the optimal stopping time of the project is a control limit policy of the following form: stop whenever the project's state exceeds a fixed critical value, or when a similar technology is introduced and protected by one of the firm's rivals, whichever occurs first. (b)For a R&D race model in which the winner-takes-all competition and the loser's return is zero, we show that the firm's optimal expenditure rate throughout the R&D program increases monotonically as a function of the project's state. In order to gain a better insight regarding optimal R&D programs in competitive markets we examine the effect of key economic parameters on the firm's optimal policy.