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Experimentation in Dynamic R&D Competition

Author

Listed:
  • Anastasios, Dosis

    (ESSEC Research Center, ESSEC Business School)

  • Abhinay, Muthoo

    (University of Warwick)

Abstract

We study a two-stage, winner-takes-all, R&D race, in which, at the outset, firms are uncertain regarding the viability of the project. Learning through experimentation introduces a bilateral (dynamic) feedback mechanism. For relatively low-value products, the equilibrium stopping time coincides with the socially efficient stopping time although firms might experiment excessively in equilibrium; for relatively high-value products, firms might reduce experimentation and stop rather prematurely due to the fundamental free-riding effect. Perhaps surprisingly, a decrease in the value of the product can spur experimentation.

Suggested Citation

  • Anastasios, Dosis & Abhinay, Muthoo, 2019. "Experimentation in Dynamic R&D Competition," ESSEC Working Papers WP1901, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-19001
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    References listed on IDEAS

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    Cited by:

    1. Gorno, Leandro & Iachan, Felipe S., 2020. "Competitive real options under private information," Journal of Economic Theory, Elsevier, vol. 185(C).

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    More about this item

    Keywords

    Experimentation; Learning; Dynamic R&D competition; Inefficiency;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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