The optimal operation decision for start-ups and established firms with R&D investment consideration

Abstract

Taking the factor of customer switching into count, we analyze duopoly models in which both start-ups and established firms consider the competitive investment in R&D when they enter the new market. Firms make a decision on investment will influence the customer switching. The firms with investment may attract new customers from other firms which does not invest and then maintain more market share. In our models, we assume the two kinds of firms have different investment objectives: established firms make the investment consideration to maximize the expected profit, whereas start-ups just try to maximize the probability of survival (Robert Swinney, 2011). Considering the customer switching, we work out four kinds of different results in this game. Finally, numerical examples are used to illustrate the models.