The analysis of technical innovation firms’ horizontal R&D of duopoly based on the absorptive capacity

This paper studies the duopoly technical innovation firmspsila optimal decisions, in which we incorporate the production quantity and R&D expenditure as decision variables. By reconstructing a more effective expression of the absorptive capacity, which is presented in Lars Wiethaus (2005), and modeling a two-stage game under the competitive case, the R&D cooperative case and the monopoly case, we obtain the results as follows: given the spillover levels, under the noncooperation case, while the firmpsilas absorptive capacity increases, her equilibrium production quantity and profit increase but her rivalpsilas decrease; under the R&D cooperation case, firmpsilas R&D expenditure and equilibrium profit increase with respect to the absorptive capacity. Furthermore, some comparison results are obtained: (1) the investment in R&D under the competitive case is more than that of R&D cooperation when the absorptive capacity is more than 0.5. However, the R&D expenditure on monopoly is more than that of R&D cooperation regardless how much the absorptive capacity is; (2) under the three different cases, the profit on monopoly is the highest whatever the absorptive capacity is; (3) the gross production quantity is least on monopoly among the three different cases whatever the absorptive capacity is.