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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. 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.
  2. Uwe Cantner & Werner Güth & Andreas Nicklisch & Torsten Weiland, 2004. "Competition in Innovation and Imitation - A Theoretical and Experimental Study -," Jenaer Schriften zur Wirtschaftswissenschaft 01/2004, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
  3. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September.
  4. 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.
  5. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
  6. Roman Studer, 2007. "India and the Great Divergence: Assessing the Efficiency of Grain Markets in Eighteenth- and Nineteenth-Century India," Economics Series Working Papers 68, University of Oxford, Department of Economics.
  7. Andrew Schotter & Keith Weigelt, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 511-539.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
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