Accelerability vs. Scalability: R&D Investment Under Financial Constraints and Competition

• 成果类型: Article
• 署名作者: Lin, Danmo
• 署名单位: University of Warwick
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4503
• 发表日期: 2023
• 页码: 4078-4107
• 关键词: accelerability; scalability; financial constraints; R&D race; over-investment; pre-emption

摘要

I develop a continuous-time model to examine how the interaction between competition and financial constraints affects firms' research and development (R&D) strategies. The model integrates two key characteristics of R&D investment: accelerability (i.e., higher R&D intensity leads to faster discovery) and scalability (i.e., higher R&D intensity leads to higher project payoff). I find that firms react strategically to their rivals' financial constraints when making investment decisions in a duopoly R&D race. In particular, firms respond positively to the R&D intensity of an unconstrained rival, while they respond in a hump-shaped fashion to the R&D intensity of a constrained rival. As a result, a constrained firm can pre-empt an unconstrained competitor in market equilibrium. Accelerability is necessary for such pre-emption to occur, and scalability generally reduces its likelihood. Comparison with a monopoly benchmark shows that the economic mechanism differs from over-investment induced by financial constraints alone. The model also generates new implications regarding how project characteristics and cash flow risks impact R&D decisions.