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Competition in product design: An experiment exploring innovation behavior

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Author Info

  • Uwe Cantner

    () (University of Jena, School of Busniess and Economics)

  • Werner Güth

    (Max Planck Institute of Economics Jena, Strategic Interaction Unit)

  • Andreas Nicklisch

    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

  • Torsten Weiland

    (Max Planck Institute of Economics Jena, Strategic Interaction Unit)

Abstract

We experimentally investigate competition in innovation in a patent race scenario. Pairs of subjects compete as seller firms on a duopoly market, engaging in risky search investments. Successful innovation is rewarded through temporary monopoly rents. Throughout the interaction, subjects receive feedback on own and other's search success and profit margin. Partitioning subjects into subgroups of investor types reveals that the majority of subjects condition investments on the degree of competition as measured by sales shares, while for others no correlation is ascertained. Heterogeneity in individual risk attitudes and differing experiences with related search tasks may explain this finding.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-014.

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Date of creation: 07 May 2007
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Handle: RePEc:jrp:jrpwrp:2007-014

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Keywords: innovation; competition; imitation; patent race;

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  1. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Josh Lerner, 1997. "An Empirical Exploration of a Technology Race," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 228-247, Summer.
  4. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
  5. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  6. Harold M. Groves, Chairman, Universities-National Bureau Committee for Economic Research, 1962. "The Rate and Direction of Inventive Activity: Economic and Social Factors," NBER Books, National Bureau of Economic Research, Inc, number univ62-1, October.
  7. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
  8. Isaac, R Mark & Reynolds, Stanley S, 1988. "Appropriability and Market Structure in a Stochastic Invention Model," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 647-71, November.
  9. Isaac, R. Mark & Reynolds, Stanley S., 1992. "Schumpeterian competition in experimental markets," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 59-100, January.
  10. Flaig, Gebhard & Stadler, Manfred, 1994. "Success Breeds Success. The Dynamics of the Innovation Process," Empirical Economics, Springer, vol. 19(1), pages 55-68.
  11. Harris, Christopher & Vickers, John, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 193-209, April.
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Cited by:
  1. Werner Güth & Kirsten Häger & Oliver Kirchkamp & Joachim Schwalbach, 2010. "Testing Forbearance Experimentally - Duopolistic Competition of Conglomerate Firms," Jena Economic Research Papers 2010-043, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Mathias Erlei & Anne-Kathrin Dimmig, 2012. "Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty," TUC Working Papers in Economics 0008, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
  3. Anna Gardocka-Jałowiec, 2011. "Neuroeconomic Conditioning of the Influence of a Market Demand of Consumers on an Innovative Character of Polish Companies," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(1), March.

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