R & D Strategy Game Analysis

Firms usually have a R&D programs portfolio with different goals and effect. Due to limited resources, how to allocate them among different R&D programs is a dilemma confronted by many, especially high-tech firms. While most R&D theoretical researches focus on one R&D program, the paper categorizes the programs into two dimensions. One dimension includes product R&D and process R&D from the short term profitability perspective and the other involves explorative R&D and exploitative R&D from long term survival perspective. The paper mainly focuses on the allocation equilibriums of different R&D programs through game methods and analyzes the effect on the equilibriums of the factors such as R&D efficiency, spillover effect, market size and uncertainty under R&D cooperation and competition.Because of the interaction of different R&D programs and the existence of several scenarios brought by the factors, there are different patterns that are unable to observe under researches based on one program or factor. The following are some main findings of the paper. First, the relationship between spillovers and product-process effort equilibrium takes on several patterns under different R&D efficiency. Second, R&D cooperation generates more product R&D efforts than R&D competition, and when process spillover is higer than a critical point, it brings more process R&D efforts. The critical point of process spillover varies with different R&D efficiency and is lower than the situation when only one program is considered. Third, Bertrand firms may obtain higher equilibrium payoffs than the less competitive Cournot firms when the product R&D cost function is relatively low. Forth, when the uncertainty level and potential profit level of explorative R&D are relatively low, R&D competition has the firms abandon the existing technology earlier than cooperation. Just on the Contrary, when the uncertainty level and potential profit level are relatively high, competitive firms may delay the time to explore the new profiting technology due to the high uncertainty than cooperative firms. Fifth, R&D externalities make firms invest less on exploration. The relationship between R&D externalities and exploitation depends on the uncertainy level and R&D efficiency which is different when firms only engage in one R&D program.