Dosis, Anastasios and Muthoo, Abhinay (2019) Experimentation in dynamic R&D competition. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1214). (Unpublished)

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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

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Technological innovations -- Economic aspects, Competition, Research -- Economic aspects, New products -- Management
Series Name:	Warwick economics research papers series (WERPS)
Publisher:	University of Warwick. Department of Economics
Place of Publication:	Coventry
ISSN:	0083-7350
Official Date:	July 2019
Dates:	Date Event July 2019 Published
Number:	1214
Number of Pages:	19
Institution:	University of Warwick
Status:	Not Peer Reviewed
Publication Status:	Unpublished
Access rights to Published version:	Open Access
Description:	This paper also appears as CRETA Discussion paper 52

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