My Research
The Role of Market Structure in Competitive Experimentation (Job Market Paper)
Click here for the latest version.
Abstract: This paper develops a framework to examine the role of market structure on the incentives for competitive experimentation. In a general market setting, two competing firms allocate resources in continuous time between (a) experimentation in a patent race and (b) investment into short-term competitiveness. In contrast to existing patent race models, both flow payoffs and the value of exit are endogenously determined through product market interaction. This endogeneity leads to strategic considerations that substantially alter the dynamics of competitive experimentation and yield new insights into the fundamental relationship between market structure, innovation incentives, and welfare. Implications for antitrust, specifically the effect of mergers on innovation and welfare, are also considered.
Leadership and the Value of Persistence with James Anton (Duke Fuqua) and Dennis Yao (Harvard Business School)
Click here for the latest version.
Abstract: Consider a leader’s decision whether to persist with an unsuccessful R&D project or to terminate the project in favor of a new project with an uncertain value. How does that decision affect the effort exerted by the manager assigned to the project? To study this question we build and analyze an equilibrium, infinite-horizon model which embeds a search problem with an agency problem. We assess the policy value of a leader’s persistence instrument under conditions of complete and incomplete information. Among other things, we find that persistence takes advantage of a manager’s incentive to gain access to future, potentially higher-payoff projects to induce effort on the current project. Furthermore, when the leader has superior information about the value of the current project, the manager may choose to delay effort to better take advantage of the information signal provided by the leader’s persistence choice.
Learning and the Timing of New Technology Adoption
Abstract: This paper analyzes the impact of endogenous learning on the adoption and diffusion of an uncertain product innovation in a duopolistic industry. Firms are asymmetric, and the rate of learning is determined by the volume of first-mover sales. Both firms may lead adoption in equilibrium, and the first mover is often unique. The resulting equilibrium dynamics are consistent with and explain several empirical phenomena, including the comparative speed of innovation diffusion across firms, the optimality of penetration pricing, and the prevalence of increasing dominance in highly innovative industries. Welfare and market structure implications are also considered.
Acquisitions and the Direction of Innovation
Revised draft coming soon.
Abstract: This paper develops a model of technology acquisitions and their effects on the rate and direction of innovation. Firms compete in an endless race for technological supremacy and can pursue both incremental and radical innovation. Acquisitions stimulate the rate of incremental R&D via an innovate-for-buyout effect; however, they also produce a large incumbency advantage which distorts the direction of R&D in favor of radical innovation. Interestingly, this directional distortion may leave both firms (leader and laggard) worse-off in equilibrium compared to a regime where acquisitions are disallowed. To correct equilibrium R&D incentives, technology leaders have an incentive to overpay when acquiring certain incremental innovations. This incentive---the innovation-steering effect---provides a new economic explanation for acquisition premiums in high-technology sectors.
The Role of Market Structure in Competitive Experimentation (Job Market Paper)
Click here for the latest version.
Abstract: This paper develops a framework to examine the role of market structure on the incentives for competitive experimentation. In a general market setting, two competing firms allocate resources in continuous time between (a) experimentation in a patent race and (b) investment into short-term competitiveness. In contrast to existing patent race models, both flow payoffs and the value of exit are endogenously determined through product market interaction. This endogeneity leads to strategic considerations that substantially alter the dynamics of competitive experimentation and yield new insights into the fundamental relationship between market structure, innovation incentives, and welfare. Implications for antitrust, specifically the effect of mergers on innovation and welfare, are also considered.
Leadership and the Value of Persistence with James Anton (Duke Fuqua) and Dennis Yao (Harvard Business School)
Click here for the latest version.
Abstract: Consider a leader’s decision whether to persist with an unsuccessful R&D project or to terminate the project in favor of a new project with an uncertain value. How does that decision affect the effort exerted by the manager assigned to the project? To study this question we build and analyze an equilibrium, infinite-horizon model which embeds a search problem with an agency problem. We assess the policy value of a leader’s persistence instrument under conditions of complete and incomplete information. Among other things, we find that persistence takes advantage of a manager’s incentive to gain access to future, potentially higher-payoff projects to induce effort on the current project. Furthermore, when the leader has superior information about the value of the current project, the manager may choose to delay effort to better take advantage of the information signal provided by the leader’s persistence choice.
Learning and the Timing of New Technology Adoption
- Conditionally accepted at the Journal of Industrial Economics
Abstract: This paper analyzes the impact of endogenous learning on the adoption and diffusion of an uncertain product innovation in a duopolistic industry. Firms are asymmetric, and the rate of learning is determined by the volume of first-mover sales. Both firms may lead adoption in equilibrium, and the first mover is often unique. The resulting equilibrium dynamics are consistent with and explain several empirical phenomena, including the comparative speed of innovation diffusion across firms, the optimality of penetration pricing, and the prevalence of increasing dominance in highly innovative industries. Welfare and market structure implications are also considered.
Acquisitions and the Direction of Innovation
Revised draft coming soon.
Abstract: This paper develops a model of technology acquisitions and their effects on the rate and direction of innovation. Firms compete in an endless race for technological supremacy and can pursue both incremental and radical innovation. Acquisitions stimulate the rate of incremental R&D via an innovate-for-buyout effect; however, they also produce a large incumbency advantage which distorts the direction of R&D in favor of radical innovation. Interestingly, this directional distortion may leave both firms (leader and laggard) worse-off in equilibrium compared to a regime where acquisitions are disallowed. To correct equilibrium R&D incentives, technology leaders have an incentive to overpay when acquiring certain incremental innovations. This incentive---the innovation-steering effect---provides a new economic explanation for acquisition premiums in high-technology sectors.