Information Acquisition and Innovation under Competitive Pressure

Andrei Barbos

No 713, Working Papers from University of South Florida, Department of Economics

Abstract: This paper studies information acquisition under competitive pressure and proposes a model to examine the relationship between product market competition and the level of innovative ac- tivity in an industry. Our paper offers theoretical support for recent empirical results that point to an inverted-U shape relationship between competition and innovation. The model presents an optimal timing decision problem where a firm endowed with an idea trades the benefits of waiting for additional information on whether this idea can be converted into a successful project against the cost of delaying innovation: a given firm's profit following innovation is decreasing in the number of firms that invested at earlier dates. By recognizing that a firm can intensify its innovative activity on two dimensions, a risk dimension and a quantitative dimension, we show that firms solve this trade-off precisely so as to generate the inverted-U shape relationship.

Keywords: Innovation; Information Acquisition; Timing Games; Preemption (search for similar items in EconPapers)
JEL-codes: D40 L10 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-01
New Economics Papers: this item is included in nep-com, nep-cse, nep-cta, nep-cwa, nep-ino, nep-knm and nep-tid
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Related works:
Journal Article: Information Acquisition and Innovation under Competitive Pressure (2015)
Working Paper: Information Acquisition and Innovation under Competitive Pressure (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:usf:wpaper:0713

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