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Experimentation in Dynamic R&D Competition

Author

Listed:
  • Dosis, Anastasios

    (ESSEC Business School and THEMA)

  • Muthoo, Abhinay

    (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,theequilibriumstoppingtimecoincideswiththesociallyefficientstoppingtime althoughfirmsmightexperimentexcessivelyinequilibrium;forrelativelyhigh-value products,firmsmightreduceexperimentationandstopratherprematurelyduetothe fundamental free-riding effect. Perhaps surprisingly, a decrease in the value of the product can spur experimentation.

Suggested Citation

  • Dosis, Anastasios & Muthoo, Abhinay, 2019. "Experimentation in Dynamic R&D Competition," CRETA Online Discussion Paper Series 52, Centre for Research in Economic Theory and its Applications CRETA.
  • Handle: RePEc:wrk:wcreta:52
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/creta/papers/manage/creta52_-_abhinay_muthoo.pdf
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    References listed on IDEAS

    as
    1. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.
    2. Rieck, Thomas, 2010. "Information Disclosure in Innovation Contests," Bonn Econ Discussion Papers 16/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Experimentation ; learning ; dynamic R&D competition ; inefficiency Jel Classification: C73 ; D83 ; O31 ; O32;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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