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Experimentation in Dynamic R&D Competition

Anastasios Dosis () and Abhinay Muthoo ()

CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA

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.

Keywords: Experimentation; learning; dynamic R&D competition; inefficiency Jel Classification: C73; D83; O31; O32 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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https://warwick.ac.uk/fac/soc/economics/research/c ... -_abhinay_muthoo.pdf

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