Why Are Firms’ R＆D Investment Behaviors Different?*

DongJoon Lee¹, Tatsuhiko Nariu²
(1. Faculty of Management, Nagoya University of Commerce & Business, Japan;
2. Graduate School of Business Administration, Kyoto University, Japan)

Abstract: This paper studies R&D investments in a successive duopoly market. This paper shows that market size and investment efficiency parameter may play a significant role on firms’ heterogeneous R&D investment behaviors. When market size is large and R&D investment is in favorable economic environment, firms are liable to make different R&D investments. This paper also figures out two interesting comparative statics under asymmetric equilibrium in which firms make different R&D investment behaviors. One is that when the market demand increases, the large market-shared downstream firm decreases its output, while the small market-shared one increases its output. The other is that when the input cost increases, the former increases its output, while the latter decreases its output.

Key words: R&D investment; market size; below-cost pricing; heterogeneous firms’ behaviors

JEL codes: D43, L13, L25, L60