Experimentation in Dynamic R&D Competition

Anastasios Dosis and Abhinay Muthoo

No WP1901, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

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, the equilibrium stopping time coincides with the socially efficient stopping time although firms might experiment excessively in equilibrium; for relatively high-value products, firms might reduce experimentation and stop rather prematurely due to the fundamental free-riding effect. Perhaps surprisingly, a decrease in the value of the product can spur experimentation.

Keywords: Experimentation; Learning; Dynamic R&D competition; Inefficiency (search for similar items in EconPapers)
JEL-codes: C73 D83 O31 O32 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2019-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Experimentation in Dynamic R&D Competition (2019)
Working Paper: Experimentation in Dynamic R&D Competition (2019)
Working Paper: Experimentation in Dynamic R&D Competition (2019)
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