On the role of information in dynamic games of R&D

This paper analyzes the influence of Information structure on the process of knowledge accumulation in a differential game of duopolistic R&D competition. By comparing open-loop and feedback Nash equilibria, representing imperfect and perfect information structures, we show that in the feedback equilibrium the stationary levels of knowledge are larger than in the corresponding open-loop equilibrium. Information about the rival's stock of technological knowledge creates a strategie incentive to increase one's own knowledge in order to preempt the rival's R&D activity. As a consequence, each firm seeks more knowledge than it would if it were unable to influence its rival's R&D decisions. Therefore, information structure has an important impact on firms' dynamic R&D behavior.