A firm’s decision to invest in R&D depends on a number of factors such as the availability of funds, extent of R&D spillovers, market structure and success probability. However, the probability of success depends, to a large extent, on factors endogenous to a firm. This means that the success probability can be known to the firm undertaking R&D investment, but not to the rivals; hence, there is incomplete information about probability of success in R&D. There are also uncertainties about the rivals’ R&D decision and R&D status. In a duopoly, we show that there is a non-monotone relation between R&D incentives and the level of information.
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