R&D in a duopoly under incomplete information

The availability of information about rivals may have a significant impact on a firm's decision about R&D investment. This paper investigates how the R&D incentive of a firm in a Cournot duopoly may depend on information structures. We show that asymmetric information about the rival's cost reduction may enhance the research incentive of each firm compared to the complete-information case. However, an additional dimension of asymmetry (e.g. the information about whether the rival has invested in R&D or not) will reduce the R&D incentive unambiguously compared to the one-dimensional asymmetry case.