R&D competition, absorptive capacity, and market shares

This paper deals with an oligopolistic industry where firms are engaged in cost-reducing R&D activity to maximize their market shares. The existence a nd uniqueness of a feedback-Nash-optimal R&D strategy for each firm are dis cussed. Our simulations highlight that variations in spillovers hardly infl uence the firms R&D investment, if their absorptive capacities to exploit e xtramural knowledge depend on their R&D efforts. Moreover, extramural knowl edge cannot completely replace in-house R&D. However, a high level of publi c R&D favors the firm with the most restrictive R&D expenditure constraint and/or with the lowest initial R&D stock provided it invests in R&D.