Small firms can succeed doing R&D on some problems, and big firms can do well at R&D of another sort. What is different about the R&D efforts of small and large firms? They can be Video Game makers, drug companies, software firms, chemical companies, etc

R D accounts for many innovative products and technologies in use today R D is however a complex and time consuming endeavor requiring resources , funds , and capital . It can pose a significant risk to the company in relation to funding , time and resources . Large firms have more resources than small firms and fair better in this respect where small firms are better equipped to respond to change quickly . Even with successful project management and skilled workforce there is no guarantee that the research will prove to be a success , turning the time

invested in the project a significant cost to the company . In addition high risk for research implies significant burden , discouraging firms from engaging in such activities . This is especially detrimental to small firms for which access to funding is more difficult . For both reasons , the amount invested by firms in research activities in a competitive framework is likely to be below the socially optimal level (Arrow , 1962 . The pros for the small firm and different than that of the large firm where small firms may be less reliant upon R D . There is a published study by John R . Baldwin that investigates the firm pros where the debate over the appropriate function of government policy for research and development (R D ) subsidies brings into focus the different roles that are played by large and small firms in the innovation process . Small firms , have different tendencies to use R D facilities than large firms which require the development of...