Effects of partial passive ownership in a successive endogenous timing game with R&D spillovers

Abstract

This study explores the effect of partial passive ownership (PPO) in a successive two-round endogenous timing game wherein firms choose research and development (R&D) investments in the first round and then subsequently choose quantities in the second round. We show that each firm prefers to be a quantity leader independent of the timing of R&D decisions, but the welfare-inferior Cournot competition is an equilibrium of an endogenous production timing game. Moreover, we discover that the equilibrium of an endogenous R&D timing game crucially depends on the PPO level and R&D spillovers rate, while the R&D timing coordination may not be socially desirable unless both are low or high. Our findings suggest that the R&D leadership position of a PPO holder can play an anticompetitive role in the coordination of R&D competition with higher R&D spillovers rates and PPO levels.