Spillover and R&D Incentives under Incomplete Information in a Duopoly Industry

Spillover of R&D results in oligopolistic industries may affect the R&D decisions of firms. How much a newly eveloped technology by a firm gets spilled over to its rival firms may or may not be observable by the concerned firm. This paper considers a two stage game involving two firms. In the first stage the firms decide whether to invest in R&D and in the next stage they compete in a Cournot duopoly market. The R&D incentives of firms are compared under alternative assumptions of complete and incomplete information scenarios involving general distribution function of types. The results indicate that the impact of availability of more information regarding rival’s ability to benefit from spilled over knowledge on R&D activities of firms is ambiguous.