Search Duplication in Research and Design Spaces - Exploring the Role of Local Competition
19 Pages Posted: 17 Oct 2014 Last revised: 17 Dec 2014
Date Written: October 17, 2014
Clustering and lack of sufficient diversification in research strategies has been identified as an important problem for delegated research as it takes place in design contests by Erat and Krishnan (2012). We show that this problem can be solved by local competition (such as bribery, lobbying or rent seeking) among players who apply the same search strategies or develop the same design. Such competition can restore full efficiency in the non-cooperative equilibrium. Local competition interacts with the choice of whether to cluster or to diversify, and rather than adding a further inefficiency to the existing ones, it eliminates inefficiency. The results are robust and hold under simultaneous search strategy choices as well as for sequential choices.
Keywords: O32, O33, D72, D74
JEL Classification: Delegated research, clustering, product design, design contest, search strat- egy, rent-seeking
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