European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No WP1901: Experimentation in Dynamic R&D Competition

Dosis Anastasios () and Muthoo Abhinay
Additional contact information
Dosis Anastasios: ESSEC Research Center, ESSEC Business School, Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
Muthoo Abhinay: University of Warwick

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

JEL-codes: C73; D83; O31; O32

19 pages, February 2019

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