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Innovation races: An experimental study on strategic research activities

  • Uwe Cantner

    ()

    (University of Jena, Faculty of Economics)

  • Andreas Nicklisch

    ()

    (Max-Planck-Institute for Research into Collective Goods)

  • Torsten Weiland

    ()

    (Max-Planck-Institute for Economics, Strategic Interactions Group)

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 behavioural 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 Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät in its series Jenaer Schriften zur Wirtschaftswissenschaft with number 17/2005.

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Date of creation: 07 Nov 2005
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Handle: RePEc:jen:jenasw:2005-17
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  1. 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.
  2. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
  3. 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.
  4. Zizzo, D.J., 2001. "Racing with Uncertainty: A Patent Race Experiment," Economics Series Working Papers 9968, University of Oxford, Department of Economics.
  5. 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.
  6. 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.
  7. 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.
  8. Isaac, R Mark & Reynolds, Stanley S, 1988. "Appropriability and Market Structure in a Stochastic Invention Model," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 647-71, November.
  9. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Asymmetric Tournaments, Equal Opportunity Laws and Affirmative Action: Some Experimental Results," Working Papers 87-33, C.V. Starr Center for Applied Economics, New York University.
  10. 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.
  11. 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.
  12. 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.
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