A Synthetic Model of Disruption and Experimentation

38 Pages Posted: 2 Aug 2021 Last revised: 28 Jun 2023

See all articles by Joshua Gans

Joshua Gans

University of Toronto - Rotman School of Management

Date Written: July 2021

Abstract

This paper examines how a firm's choice of the type of experiment impacts on its potential exploitation of new technological opportunities. It does so in the context of the failure of successful firms (or disruption) where the literature has informally suggested that firms undertake errors in experimental choice (in particular, choosing experiments that involved biased signals). It is shown that firms will generically choose biased over unbiased experiments even when there are no differences in their relative costs. This is done to better inform decisions regarding the exploitation of technological opportunities. It is shown that these choices can differ between incumbents and entrants based on their fundamentals as well as because of the anticipation of competition between them.

Suggested Citation

Gans, Joshua, A Synthetic Model of Disruption and Experimentation (July 2021). NBER Working Paper No. w29091, Available at SSRN: https://ssrn.com/abstract=3897526

Joshua Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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