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Time consuming technology development: how imitation and spillovers affect competitive dynamics

Author: Pacheco-de-Almeida, Gonçalo ; Zemsky, PeterINSEAD Area: Strategy Series: Working Paper ; 2008/50/ST Publisher: Fontainebleau : INSEAD, 2008.Language: EnglishDescription: 38 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: While there is an extensive body of theory on RandD, the literature predominantly focuses on the uncertain nature of research activities. In contrast, we study the time-consuming and costly, but more certain, process of technology development. We analyze the effect of imitation and the resulting knowledge spillovers from technology leaders to technology followers on competitive dynamics such as the rate of technology discussion in an industry, the sustainability of technology-based competitive advantages, and performance differences across …rms. Our results challenge the widely accepted view that inter-…rm spillovers are beneficial to technology followers but detrimental to technology leaders. We show that leaders may have incentives to increase spillovers to induce followers to switch from concurrent to imitative technology development strategies. Conversely, follower …rms may be worse off with more spillovers because leaders expect to be imitated faster and have fewer incentives to develop a new technology, which delays its diffusion into the industry. In addition, we characterize the incentives of technology leaders and followers to invest in development capabilities. Our model derives testable relationships between important competitive and financial variables that are often empirically observable. NYU and INSEAD. We thank Adam Brandenburer, Luis Cabral, Michael Katz, Francisco Ruiz-Aliseda, and Scott Stern for their helpful comments.
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While there is an extensive body of theory on RandD, the literature predominantly focuses on the uncertain nature of research activities. In contrast, we study the time-consuming and costly, but more certain, process of technology development. We analyze the effect of imitation and the resulting knowledge spillovers from technology leaders to technology followers on competitive dynamics such as the rate of technology discussion in an industry, the sustainability of technology-based competitive advantages, and performance differences across …rms. Our results challenge the widely accepted view that inter-…rm spillovers are beneficial to technology followers but detrimental to technology leaders. We show that leaders may have incentives to increase spillovers
to induce followers to switch from concurrent to imitative technology development strategies. Conversely, follower …rms may be worse off with more spillovers because leaders expect to be imitated faster and have fewer incentives to develop a new technology, which delays its diffusion into the industry. In addition, we characterize the incentives of technology leaders and followers to invest in development capabilities. Our model derives testable relationships between important competitive and financial variables that are often empirically
observable. NYU and INSEAD. We thank Adam Brandenburer, Luis Cabral, Michael Katz, Francisco Ruiz-Aliseda, and Scott Stern for their helpful comments.

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