A stochastic competitive R&D race where "winner takes all"

Pelin G. Canbolat; Boaz Golany; Inbal Mund; Uriel G. Rothblum

doi:https://doi.org/10.1287/opre.1120.1055

A stochastic competitive R&D race where "winner takes all"

Pelin G. Canbolat, Boaz Golany, Inbal Mund, Uriel G. Rothblum

Data and Decision Sciences

Technion - Israel Institute of Technology

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

Abstract

The paper considers a race among multiple firms that compete over the development of a product. The first firm to complete the development gains a reward, whereas the other firms gain nothing. Each firm decides how much to invest in developing the product, and the time it completes the development is a random variable that depends on the investment level. The paper provides a method for explicitly computing a unique Nash equilibrium, parametrically in the interest rate; for a given interest rate, the Nash equilibrium is determined in time that is linear in the number of firms. The structure of the solution yields insights about the behavior of the participants. Furthermore, an explicit expression for a unique globally optimal solution is obtained and compared to the unique Nash equilibrium.

Original language	English
Pages (from-to)	700-715
Number of pages	16
Journal	Operations Research
Volume	60
Issue number	3
DOIs	https://doi.org/10.1287/opre.1120.1055
State	Published - May 2012

All Science Journal Classification (ASJC) codes

Computer Science Applications
Management Science and Operations Research

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Cite this

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AB - The paper considers a race among multiple firms that compete over the development of a product. The first firm to complete the development gains a reward, whereas the other firms gain nothing. Each firm decides how much to invest in developing the product, and the time it completes the development is a random variable that depends on the investment level. The paper provides a method for explicitly computing a unique Nash equilibrium, parametrically in the interest rate; for a given interest rate, the Nash equilibrium is determined in time that is linear in the number of firms. The structure of the solution yields insights about the behavior of the participants. Furthermore, an explicit expression for a unique globally optimal solution is obtained and compared to the unique Nash equilibrium.

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A stochastic competitive R&D race where "winner takes all"

Abstract

All Science Journal Classification (ASJC) codes

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