The Asymmetric Game Strategies Utilizing R&D Incentives under Uncertain Patent Race and Non-infringing Imitation

Abstract

The primary objective of this research is to provide the optimal strategies for firms and decision makers to take advantage of competitive situations in which they obtain the greatest benefits. We analyze the various scenarios that can occur during the process of determining R&D investment with the probabilities of patent protection, patent acquisition and non-infringing imitation in a duopoly competition. In particular, through the R&D investment game model that determines the payoff from competition, we investigate how R&D decisions can be strategically made in various scenarios. First, we consider the game situation of two competing firms where both firms decide simultaneously whether to invest in R&D or not in the first stage and then in the second stage compete with each other for payoffs along with patent acquisition. We compare the asymmetrical competitive model and the symmetrical competitive model to analyze which competitive structure offers more incentive for R&D. In particular, the analysis is done separately for markets with and without patent protection to shed light on whether R&D cooperation and technology licensing can be used strategically. The scenario analysis suggests a need for changing the strategy in accordance with the level of asymmetry in competition and the likelihood of non-infringing imitation. Secondly, we assume a situation where competition for a certain product market reaches a saturation point and therefore the profit structure of the two firms becomes that of a zero-sum game. Under this assumption, the symmetric R&D game model is expanded and then analyzed. In particular, by comparing situations where non-infringing imitation is likely with situations where such a case is not possible, we analyze the strategic R&D incentive in accordance with the other party’s R&D investment decision. Thirdly, we build a duopoly R&D competitive game model where winning and losing a patent competition is statistically applied then observe the changes in R&D incentives in accordance with the changes in the probability of acquiring a patent. Through a two-way sensitivity analysis on the changes in probability of a patent acquisition and the probability of a non-infringing imitation between the two firms, we compare R&D investment strategies in a nonzero-sum and a zero-sum game environment. By comparing a symmetric R&D investment game model and an asymmetric R&D game model, we are able to identify a strategy that increases the incentive for R&D. Lastly, we conduct sensitivity analysis to understand how patent protection and the likelihood of imitation affect the decision on R&D investment and to identify the most notable variables that the decision-maker should take into account. In particular, we offer a strategic selection range for R&D cooperation and technology licensing in a bilateral R&D investment situation.