Experimentation and Appropriability in Early-Stage Ventures: Evidence from the US Software Industry
41 Pages Posted: 10 Dec 2018 Last revised: 6 Dec 2019
Date Written: December 5, 2019
This study examines the tension between learning and appropriability in the experimentation process of early-stage ventures. Using a stylized model, I propose that when formal intellectual property is weak the learning benefits of experimentation may be offset by its imitation risks. I test this hypothesis on a hand-collected dataset of 1,200 US-based software ventures, exploiting the software release life cycle to measure experimentation and US Supreme Court decision Alice Corp v CLS Bank International as negative shock to patent protection. Following the ruling, affected ventures experiment less but launch earlier. Consistently with the theory, his pattern is moderated by learning incentives and competition. The evidence confirms that the learning-appropriability tension plays a central role in entrepreneurship and suggests boundary conditions for the use of experimentation.
Keywords: Experimentation, Learning, Appropriability, Entrepreneurship, Software
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