Competition in Product Design: An Experiment Exploring Innovation Behavior
27 Pages Posted: 5 Oct 2007 Last revised: 3 Sep 2013
Date Written: May 7, 2007
We experimentally investigate competition in innovation in a patent race scenario. Pairs of subjects compete as seller firms on a duopoly market, engaging in risky search investments. Successful innovation is rewarded through temporary monopoly rents. Throughout the interaction, subjects receive feedback on own and other's search success and profit margin. Partitioning subjects into subgroups of investor types reveals that the majority of subjects condition investments on the degree of competition as measured by sales shares, while for others no correlation is ascertained. Heterogeneity in individual risk attitudes and differing experiences with related search tasks may explain this finding.
Keywords: innovation, competition, imitation, patent race
JEL Classification: D81, L11, O31
Suggested Citation: Suggested Citation