Abstract :
This paper analyzes the impact of a future R&D race on current firm behavior in the product market. It is shown that, in order to “soften” rivals in the future R&D race, firms behave less aggressively in the pre-innovation product market than in the standard duopoly models. As a result, the R&D rates are lower than what firms would choose if standard duopoly outcomes are assumed. R&D cooperation is shown to be capable of restoring the duopoly outcome.
