Abstract
AbstractThis paper examines the cost‐reducing research and development (R&D) competition of duopolistic firms with consideration of R&D budget constraint and R&D uncertainty through constructing a game‐theoretic game. We find the R&D success probability decreases each firm's expected profit when this probability remains high because it intensifies R&D competition too much in this scenario. We show each firm suffers from an increase in R&D budget when such budget is moderate due to the intensified R&D competition as well. Furthermore, we reveal output subsidy leads to a higher expected total subsidy cost and a higher expected social welfare than R&D subsidy.
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