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Innovation races: An experimental study on strategic research activities

  • Uwe Cantner
  • Andreas Nicklisch


  • Torsten Weiland


In an experimental setting, firms in a duopoly market engage in a patent tournament and compete for profit-enhancing product advancements. The firms generate income by matching exogenously defined demand preferences with an appropriately composed product portfolio of their own. Demand preferences are initially unknown and first need to be revealed by an investigation of the possible product variations. The better firms approximate demand preferences, the higher their profits. In the ensuing innovation race, firms interact through information spillovers resulting from the imperfect appropriability of research successes. In the random period of the experiment, the continuity of the search process is disturbed by an exogenous shock that affects both the supply and demand side and again spurs research competition. Firms may henceforth explore an enlarged product space in attempting to match the equally modified demand preferences. In our analysis, we explore the behavioral regularities of agents who are engaged in innovation activities. As a key element we test to what extend relative economic performance exercises a stimulating effect on the implementation of innovation and imitation strategies.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-14.

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Length: 25 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:esi:discus:2005-14
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  1. Vickers, John S, 1986. "The Evolution of Market Structure When There Is a Sequence of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 1-12, September.
  2. Uwe Cantner & Werner Gueth & Andreas Nicklisch & Torsten Weiland, 2003. "Competition in Innovation and Imitation - A Theoretical and Experimental Study -," Papers on Strategic Interaction 2004-02, Max Planck Institute of Economics, Strategic Interaction Group.
  3. repec:tpr:qjecon:v:103:y:1988:i:4:p:647-71 is not listed on IDEAS
  4. 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.
  5. Schotter, Andrew & Weigelt, Keith, 1990. "Asymmetric Tournaments, Equal Opportunity Laws And Affirmative Action: Some Experimental Result," Working Papers 90-14, C.V. Starr Center for Applied Economics, New York University.
  6. Zizzo, Daniel John, 2002. "Racing with uncertainty: a patent race experiment," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 877-902, June.
  7. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
  8. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
  9. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-90, September.
  10. Reinganum, Jennifer R., 1982. "Uncertain Innovation and the Persistence of Monopoly," Working Papers 431, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-43, May.
  12. Stark, Oded, 1990. "A Relative Deprivation Approach to Performance Incentives in Career Games and Other Contests," Kyklos, Wiley Blackwell, vol. 43(2), pages 211-27.
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