On the efficiency of the parallel path R&D approach: a stochastic game analysis

This paper explores the economic performance of the parallel path R&D approach to product innovation in the absence of patent protection. This is done within the context of a formal model in which competitive innovation is characterized as a dynamic game. The dynamic programming approach used by Aldrich and Morton [Manage. Sci. 21 (1975) 491] in the single firm case is extended here to a multi-firm market. Various measures (the expected net present value (ENPV) of total surplus and of profits, and the mean time to first innovation) are evaluated under different market structures. The study includes simulation analysis of the model.