R&D choice with compatibility externality

I consider firms’ R&D project choice problem in the presence of compatibility externality. Firms which engage in R&D based on risky fundamental technologies (sites) face two kinds of uncertainties: the uncertainty involved in the fundamental technology (whether a treasure is buried in the site) and the uncertainty involved in its own R&D activity (whether investigation succeeds given that a treasure is buried in the site investigated). Each firm carries out two activities in the site that it chooses: production and research. There exists compatibility benefit in both production revenue and the R&D reward when firms choose the same site. Such compatibility benefit which the firms can’t internalize and the nature of competition in the prospective product market interplay to result in over-duplication or over-differentiation in R&D choice in the equilibrium.