Innovative activity and sunk cost

Todd R. Kaplan; Israel Luski; David Wettstein

doi:10.1016/S0167-7187(03)00033-X

Innovative activity and sunk cost

Todd R. Kaplan, Israel Luski, David Wettstein

Department of Economics

Research output: Contribution to journal › Article › peer-review

38 Scopus citations

Abstract

We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior.

Original language	English
Pages (from-to)	1111-1133
Number of pages	23
Journal	International Journal of Industrial Organization
Volume	21
Issue number	8
DOIs	https://doi.org/10.1016/S0167-7187(03)00033-X
State	Published - 1 Jan 2003

Keywords

All-pay auctions
Innovation
R&D
Races
Sunk costs

ASJC Scopus subject areas

Industrial relations
Aerospace Engineering
Economics and Econometrics
Economics, Econometrics and Finance (miscellaneous)
Strategy and Management
Industrial and Manufacturing Engineering

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10.1016/S0167-7187(03)00033-X

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title = "Innovative activity and sunk cost",

abstract = "We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior.",

keywords = "All-pay auctions, Innovation, R&D, Races, Sunk costs",

author = "Kaplan, {Todd R.} and Israel Luski and David Wettstein",

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AU - Luski, Israel

AU - Wettstein, David

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N2 - We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior.

AB - We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior.

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KW - R&D

KW - Races

KW - Sunk costs

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Innovative activity and sunk cost

Abstract

Keywords

ASJC Scopus subject areas

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