Abstract
The effect of information spillovers is analysed in a mixed duopoly where a profit-maximizing private firm and a market-share-maximizing public firm decide whether to invest in a process innovation. It is shown that, when the spillover effect is rather strong, the public firm innovates in order to acquire a larger market share, while the private firm prefers that its rival invests in the new technology and reaps the benefits of technological leakages if investment costs are moderate. Thus, when information spillovers are taken into account, the public firm sometimes behaves more innovatively than the private firm, which is contrary to the well-known results. Furthermore, in a mixed duopoly where only the public firm invests, its average cost exceeds that of its competitor, but investment remains an efficient strategy compared with non-investment.
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