Spillovers, disclosure lags, and incentives to innovate: Do oligopolies over-invest in R&D?

We develop a dynamic duopoly, where \u85rms have to take into account a technological externality, that reduces over time their innovation costs, and an inter-\u85rm spillover, that lowers only the second comers R&D cost. This spillover exerts its e¤ect after a disclosure lag. We identify three possible equilibria, which are classi\u85ed, according to the timing of R&D investments, as early, intermediate, and late. The intermedi-ate equilibrium is subgame perfect for a wide parameters range. When the innovation size is large, it implies that the duopolistic market equi-librium involves underinvestment. Hence, even in presence of a mod-erate degree of inter-\u85rms spillover, the competitive equilibrium calls for public policies aimed at increasing the research activity. When we focus on minor innovations the case in which, according to the ear-lier literature, the market equilibrium underinvests our results imply that the policies aimed at stimulating R&D have to be less sizeable than suggested before, despite the presence of an inter-\u85rm spillover