International competition and asymmetric technology game

This paper uses a differential game model to study the basic nature of the international competition between the technological leaders and latecomers. The monopolistic firms in the two types of countries engage R&D activities to produce similar products and export them in the world market. The firm in Country I (technological advanced) engages in both basic and applied res earch, whereas the firm in Country Il imports basic technology from Country I and makes improvements to it. It is shown that the final outcome depends on the strategies of each firm. Because of the asymmetric nature of the two firms in R&D activities, the fi rm with a more efficient applied technology may not necessarily win the com petition - "paradox." This paper examines the various conditions under whic h these paradoxical cases may emerge. (C) 2001 Elsevier Science B.V. All ri ghts reserved.