Developer's Expertise and Dynamicsof Financial Innovation: Theory and Evidence
AbstractWe study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers’ expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator’s market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model.
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Bibliographic InfoPaper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp124.
Date of creation: Oct 2004
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Innovation and imitation; first-mover advantages; product differentiation; learning;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L89 - Industrial Organization - - Industry Studies: Services - - - Other
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