Process R&D investment and social dilemmas

Abstract

AbstractWe consider a coopetitive game model of firms’ behavior in process R&D with entry cost. We compare the competitive behavior of firms in R&D with the R&D coopetition scenario. In R&D coopetition, firms engage in a bargaining process to reach a binding R&D agreement. We find that R&D competition can lead to a prisoner’s dilemma or a chicken game between market rivals. The possibility of entering a binding R&D agreement resolves the above social dilemmas associated with the firms’ competitive behavior. In turn, under R&D coopetition, for a medium level of R&D entry cost, firms may enter a trust dilemma, but it is a beneficial scenario in comparison with the corresponding R&D competition outcome.