Selection of R&D techniques: The influence of spillover effects and government subsidies

Abstract

This study examines the research and development (R&D) investment strategies of two competing logistics firms under the influence of spillover effects and government subsidies. Firms must decide whether to invest in similar or distinct R&D techniques, or to forgo R&D entirely. Spillover effects occur only when firms adopt different R&D techniques, including cases where one firm chooses not to invest in R&D while the other does. Our findings show that high spillover effects discourage firms from investing in R&D, while low spillover effects induce firms to choose the same R&D techniques. However, social welfare cannot be maximized under the equilibrium state established by free competition among firms. Subsequently, we investigate the impact of government subsidies on firms’ operational decisions, finding that firms choose different R&D techniques when spillover effects are low and R&D costs are high. Notably, government subsidies can partially rectify the misalignment between the Nash equilibrium and maximization of social welfare. This implies that, under certain conditions, government intervention can achieve a dual optimization of firm profits and social welfare. This is crucial for supply chain management, as it ensures both logistics efficiency and competitive pricing, ultimately benefiting the entire supply chain system.