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Information Acquisition and Innovation under Competitive Pressure

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  • Andrei Barbos

    ()
    (Department of Economics, University of South Florida)

Abstract

This paper studies information acquisition under competitive pressure and proposes a model to examine the relationship between product market competition and the level of innovative ac- tivity in an industry. Our paper offers theoretical support for recent empirical results that point to an inverted-U shape relationship between competition and innovation. The model presents an optimal timing decision problem where a firm endowed with an idea trades the benefits of waiting for additional information on whether this idea can be converted into a successful project against the cost of delaying innovation: a given firm's profit following innovation is decreasing in the number of firms that invested at earlier dates. By recognizing that a firm can intensify its innovative activity on two dimensions, a risk dimension and a quantitative dimension, we show that firms solve this trade-off precisely so as to generate the inverted-U shape relationship.

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Bibliographic Info

Paper provided by University of South Florida, Department of Economics in its series Working Papers with number 0713.

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Length: 25 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:usf:wpaper:0713

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Related research

Keywords: Innovation; Information Acquisition; Timing Games; Preemption;

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References

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Citations

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Cited by:
  1. Barbos, Andrei, 2013. "De-synchronized clocks in preemption games with risky prospects," Mathematical Social Sciences, Elsevier, vol. 65(3), pages 203-216.

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