Abstract:
There have been few attempts to model the interaction of R and D, the leakage of industrial technology and product pricing. In the present paper we develop a simple leader¿follower model of process innovation with leakage. The leader engages in R and D and sets the product price. The discoveries of the leader become available to the followers with delay. The task of the leader is to choose a time sequence of product prices and a time sequence of expenditures on R and D, knowing the supply function of the followers during each interval of time and knowing how that function changes through time in response to its own earlier expenditures on R and D. We describe the trajectories in qualitative terms and derive several comparative static results.
