Experimentation in Dynamic R&D Competition

Anastasios Dosis and Abhinay Muthoo

Working Papers from HAL

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)
Date: 2019-02-04
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino and nep-mic
Note: View the original document on HAL open archive server: https://essec.hal.science/hal-02102518v1
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Working Paper: Experimentation in Dynamic R&D Competition (2019)
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