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Competition In Product Design: An Experiment Exploring Innovation Behavior

Author

Listed:
  • Uwe Cantner
  • Werner Güth
  • Andreas Nicklisch
  • Torsten Weiland

Abstract

We experimentally investigate competition for innovations in a patent race scenario. Pairs of subjects compete as seller firms on a duopoly market, investing in risky search. Successful innovations resulting thereof are rewarded via temporary monopoly rents. Classifying investor types reveals that most of them invest according to objective investment criteria, such as probability of search success and cash flow, as well as to non-pecuniary criteria, such as intensity of competition and relative performance. For a minority, however, no such correlation is ascertained. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Uwe Cantner & Werner Güth & Andreas Nicklisch & Torsten Weiland, 2009. "Competition In Product Design: An Experiment Exploring Innovation Behavior," Metroeconomica, Wiley Blackwell, vol. 60(4), pages 724-752, November.
  • Handle: RePEc:bla:metroe:v:60:y:2009:i:4:p:724-752
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
    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. Universities-National Bureau Committee for Economic Research & Committee on Economic Growth of the Social Science Research Council, 1962. "The Rate and Direction of Inventive Activity: Economic and Social Factors," NBER Books, National Bureau of Economic Research, Inc, number univ62-1.
    6. Flaig, Gebhard & Stadler, Manfred, 1994. "Success Breeds Success. The Dynamics of the Innovation Process," Empirical Economics, Springer, vol. 19(1), pages 55-68.
    7. Christopher Harris & John Vickers, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 193-209.
    8. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
    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. R. Mark Isaac & Stanley S. Reynolds, 1988. "Appropriability and Market Structure in a Stochastic Invention Model," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 647-671.
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    Citations

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    Cited by:

    1. Werner Güth & Kirsten Häger & Oliver Kirchkamp & Joachim Schwalbach, 2016. "Testing Forbearance Experimentally: Duopolistic Competition of Conglomerate Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 63-86, February.
    2. Brueggemann, Julia & Meub, Lukas, 2015. "Experimental evidence on the effects of innovation contests," Center for European, Governance and Economic Development Research Discussion Papers 251, University of Goettingen, Department of Economics.
    3. Brüggemann, Julia & Crosetto, Paolo & Meub, Lukas & Bizer, Kilian, 2016. "Intellectual property rights hinder sequential innovation. Experimental evidence," Research Policy, Elsevier, vol. 45(10), pages 2054-2068.
    4. Engel, Christoph & Kleine, Marco, 2015. "Who is afraid of pirates? An experiment on the deterrence of innovation by imitation," Research Policy, Elsevier, vol. 44(1), pages 20-33.
    5. repec:eee:iepoli:v:39:y:2017:i:c:p:72-83 is not listed on IDEAS
    6. 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).
    7. Brüggemann, Julia & Proeger, Till, 2017. "The effectiveness of public subsidies for private innovations: An experimental approach," Center for European, Governance and Economic Development Research Discussion Papers 266, University of Goettingen, Department of Economics.
    8. 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.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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