Guest Speaker:
Robert Meyer
Professor of Marketing, The Wharton School, University of Pennsylvania
Topic:
Experimental Tests of a Theory of Preemptive Innovation
Chairperson:
Associate Professor of Marketing HAN Jin K.
School of Business, Singapore Management University
Venue:
Business Block, Level 2, Seminar Room 4
Singapore Management University
469 Bukit Timah Road, Singapore 259756
Date:
Thursday, 11July 2002, at 4.00pm
Reservation:
This seminar is free. Places are limited. Please confirm your attendance by Wednesday, 10 July 2002, 12 noon with Ms. Lim Lih Yeng at lylim@smu.edu.sg or telephone: 6822-0197.
About the Seminar:
The process by which managers learn strategies for when to develop and launch new products is examined. We focus on a specific problem where multiple competing firms supervise R&D labs that generate new product ideas on a regular basis whose qualities are random draws from independent distributions. The problem captures a setting where pioneering advantages are complete: the first firm to launch the product receives a reward tied to the value of the innovation, the lagging firm nothing. The problem is characterized by a pure Nash equilibrium where a firm should launch as soon as it develops an innovation whose quality is above a fixed threshold value that is a function of the quality distribution and the number of competitors. For example, if there are two competitors and the innovation qualities are 0-1 uniform, a firm should launch as soon it develops an innovation quality of 1/3 or better-not sooner nor later.
Three experiments are reported that probe whether managers naturally converge toward this rational strategic equilibrium when engaged in the task. The data uniformly suggest that they do not; a first experiment, for example, shows that play is dominated by a consistent, mildly-patient launch strategy that shows signs of evolving neither toward the Nash or a cooperative equilibrium. When the task is simplified in a second experiment by restricting the space of feasible strategies to threshold rules, we begin to see evidence of learning, but it is biased. In one condition, for example, subjects engage in an aggressive pattern of tit-for-tat that causes strategies to evolve from mild cooperation at early stages to aggression more severe than that prescribed by the Nash policy at later stages. A third experiment attempts to further foster learning by allowing subjects to play against computer opponents playing fixed strategies, as well as providing them with long-term feedback. Neither of these manipulations, however, produce inductive discovery of the Nash strategy or cooperation.
After reporting the results we offer a broader discussion of their implications both for likely patterns of real-world product innovation strategies as well the ability of managers to learn in complex, dynamic, task settings.
