Rent-Seeking in Research Markets

Using a standard model of uncertain innovation, this paper examines research rivalry and rent-seeking rivalry in innovation markets. Previous literature has not considered the implications of rent-seeking in research markets. We find that greater rent-seeking by the rival unambiguously lowers own profit-maximizing research and rent-seeking activity. On the other hand, greater research spending by the rival also lowers own research and rent-seeking, especially when the probability of own innovation is low. Policy implications are discussed.