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Firm Asymmetries and Sequential R&D: Theory and Evidence from the Mainframe Computer Industry

Author

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  • Tarun Khanna

    (Graduate School of Business Administration, Harvard University, Boston, Massachusetts 02163)

  • Marco Iansiti

    (Graduate School of Business Administration, Harvard University, Boston, Massachusetts 02163)

Abstract

We incorporate strategic considerations into the analysis of a problem that has hitherto been treated in a decision theoretic fashion: the allocation of scarce R&D resources when R&D proceeds in stages. In doing so, we formalize a notion of "system complexity" and investigate its implications for the allocation of these scarce resources. Using detailed data from fieldwork at all mainframe manufacturers in the world to investigate our theoretical predictions, we provide evidence that larger market share firms set more aggressive stage targets, as do more resource-rich firms. Our results can be seen as a verification of the mechanism underlying Arrow's "replacement" effect.

Suggested Citation

  • Tarun Khanna & Marco Iansiti, 1997. "Firm Asymmetries and Sequential R&D: Theory and Evidence from the Mainframe Computer Industry," Management Science, INFORMS, vol. 43(4), pages 405-421, April.
    • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:4:p:405-421
    DOI: 10.1287/mnsc.43.4.405
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    Cited by:

    1. Antonio Tesoriere, 2021. "Drastic innovation reduces firms’ incentives to create divisions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 971-994, October.
    2. Amir, Rabah & Jin, Jim Y. & Troege, Michael, 2008. "On additive spillovers and returns to scale in R&D," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 695-703, May.
    3. Nisvan Erkal & Deborah Minehart, 2007. "Optimal Sharing Strategies in Dynamic Games of Research and Development," EAG Discussions Papers 200707, Department of Justice, Antitrust Division.
    4. Nisvan Erkal & Deborah Minehart, 2014. "Optimal Technology Sharing Strategies in Dynamic Games of R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 149-177, March.
    5. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, vol. 50(2), pages 133-144, February.
    6. Amir, Rabah & Halmenschlager, Christine & Jin, Jim, 2011. "R&D-induced industry polarization and shake-outs," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 386-398, July.
    7. Roy, Raja & Cohen, Susan K., 2015. "Disruption in the US machine tool industry: The role of inhouse users and pre-disruption component experience in firm response," Research Policy, Elsevier, vol. 44(8), pages 1555-1565.
    8. Nisvan Erkal & Deborah Minehart, 2013. "Optimal Sharing Strategies in Dynamic," Department of Economics - Working Papers Series 1174, The University of Melbourne.
    9. Luís M. B. Cabral, 2003. "R&D Competition when firms Choose Variance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 139-150, March.
    10. A. Messica & A. Mehrez & I. David, 2000. "Optimal Expenditure Patterns of a Double-Path Engineering Project," Journal of Optimization Theory and Applications, Springer, vol. 105(2), pages 441-455, May.
    11. Axel Anderson & Luís M. B. Cabral, 2007. "Go for broke or play it safe? Dynamic competition with choice of variance," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 593-609, September.

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