A Synthetic Model of Disruption and Experimentation

Joshua Gans

No 29091, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines how a firm's choice of the type of experiment impacts on its potential exploitation of new technological opportunities. It does so in the context of the failure of successful firms (or disruption) where the literature has informally suggested that firms undertake errors in experimental choice (in particular, choosing experiments that involved biased signals). It is shown that firms will generically choose biased over unbiased experiments even when there are no differences in their relative costs. This is done to better inform decisions regarding the exploitation of technological opportunities. It is shown that these choices can differ between incumbents and entrants based on their fundamentals as well as because of the anticipation of competition between them.

JEL-codes: L26 O32 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-exp, nep-ino, nep-isf and nep-reg
Note: PR
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