Uncertainty, Performance Position, and the Dynamics of Technological Competition

59 Pages Posted: 11 Jun 2020 Last revised: 22 Nov 2021

See all articles by Daniel Keum

Daniel Keum

Columbia University - Columbia Business School

Date Written: April 1, 2021

Abstract

Macroeconomic uncertainty has been characterized as a threat and an opportunity. In explicating the two competing characterizations, we draw from real options analysis and propose that the upside potential from increasing uncertainty (or the “growth-options” effect) asymmetrically benefits laggards due to their greater potential to improve performance relative to leaders. Using a news-based measure of uncertainty in economic policy, we show that uncertainty decreases the absolute rate of innovation from the increased value of waiting but increases laggards’ innovation relative to leaders, which has the effect of intensifying neck-and-neck competition and reshuffling among leaders and laggards. Our findings that uncertainty is advantageous to laggards provide an options-based basis for Knight’s premise that uncertainty, rather than the technological change itself, underpins the emergence of new threats and opportunities. They also highlight the neglected role of demand uncertainty, especially around government spending, in driving technological competition and fluctuations in competitive intensity.

Keywords: Innovation, Uncertainty, Real options, Technological competition, Industry dynamism

JEL Classification: C73, D80, E22, G38, O32

Suggested Citation

Keum, Daniel, Uncertainty, Performance Position, and the Dynamics of Technological Competition (April 1, 2021). Available at SSRN: https://ssrn.com/abstract=3585998 or http://dx.doi.org/10.2139/ssrn.3585998

Daniel Keum (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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