Strategic R&D and Innovation

Abstract

Innovation is important to an economy for a variety of reasons. First, it is through innovation and the resulting investment in new and better processes that technical progress comes about and such change is essential for economic growth. In the second place, the new products that result from innovation are crucial in improving living standards. Thirdly, in an international context, there is considerable evidence that a country's trade performance depends significantly on its non-price competitiveness and innovation contributes directly to this (Fagerberg, 1988). Because of the central importance of innovation, it is therefore not surprising that the resurgence of interest in industrial organisation has resulted in a considerable improvement in our analytical understanding of the process and of the relationship between the market equilibrium and the social optimum. The technique that has proved to be most useful is game theory and our aim in this chapter is to give a straightforward and coherent account of what has been learned from its application to the analysis of strategic technological competiton.