Dynamic R&D Competition with Memory.

We consider a differential game of R&D competition and explore the impact of rivalry on the firms' investment behavior over time. Using closed-loop strategies and hence allowing for strategic interactions among rival firms, we show that R&D spending by the individual competitor is increased due to competition in the race for priority. This leads us to argue that competitive encounters enhance R&D activities at the same time as increasing efficiency in the race for a technological breakthrough.