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Innovative Activity with Sunk Cost
Kaplan, Todd R.
University of Exeter; Ben-Gurion University of the Negev
International Journal of Industrial Organization
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.
International Journal of Industrial Organization, Vol. 21(8), October 2003, p. 1111-1133