Abstract
This paper studies a Stackelberg game among the downstream firms in a vertical industry where one-way R&D spillovers occur, from the leader to the follower. When the upstream market is perfectly competitive under certain conditions the standard first-mover advantages disappear. When we move to the upstream monopolistic case we find that despite the existence of spillovers in most of the cases, the leader gets higher profits and thus first-mover advantages are reinstated due to the price setting behavior of the upstream firm. It therefore challenges to some extent the “naive” idea that under one-way spillovers there are no incentives for early movers.
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