Innovative activity and sunk cost

Todd R. Kaplan, Israel Luski, David Wettstein

Research output: Contribution to journalArticlepeer-review


We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior.

Original languageEnglish
Pages (from-to)1111-1133
Number of pages23
JournalInternational Journal of Industrial Organization
Issue number8
StatePublished - Oct 2003
Externally publishedYes

Bibliographical note

Funding Information:
We are grateful for the insightful comments from seminar participants at Norwegian School of Economics and Business, Hebrew University, Tel-Aviv University, University of Exeter, University of Copenhagen, and Autonoma University of Barcelona. We also thank the editor and two anonymous referees for several important comments and suggestions. We acknowledge the financial support from the Monaster Center for Economic Research.


  • All-pay auctions
  • Innovation
  • R&D
  • Races
  • Sunk costs

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering


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