Racing with Uncertainty

Abstract

The paper presents two models of races in which there is both technological uncertainty and strategic interaction between competitors as the race unfolds. Most of the existing literature examines one or other of these features, but not the two combined. Our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them. In our principal model, whch is of a one-dimensional race, it is shown that the leader in the race makes greater efforts than the follower, and efforts increase as the gap between competitors decreases. Under certain conditions the same results hold in our second, related model, which is of a two-dimensional race.

Racing To Invest? The Dynamics of Competition in Ethical Drug Discovery

“…These models yield qualitatively the same results as the deterministic auction model (Harris and Vickers, 1987;Lee and Wilde, 1980;Loury, 1979;Reinganum 1982Reinganum , 1989, but also rely on strong assumptions about the information available to the players and the stochastic nature of invention. In these models uncertainty leads to multiple entry, so that many firms invest in research.…”

“…Rival firms' optimizing responses to each other's moves could be to increase investment, decrease investment, or do nothing, depending on the structure of the "true" behavioral model, the determination of payoffs, the distribution of success probabilities, the nature of costs and so on (Harris and Vickers, 1987;Scherer, 1967Scherer, , 1992.…”

Competitive experimentation with private information: The survivor's curse

“…As a result, the equilibrium displays no duplication costs, and it is indeed socially e¢ cient. However, once we reintroduce uncertainty in the duration of each step (Harris and Vickers (1987)) the preemption e¤ect vanishes, and equilibrium R&D investment is again socially excessive, due to duplication costs. Horner (2003) obtains similar results in a model with uncertainty but no …nish line, and where a player's payo¤ is larger when ahead in the race.…”

Continuous Time Contests with Private Information

“…A dynamic contest model requires a choice of the informational assumptions. For instance, Harris and Vickers (1987) and Moscarini and Smith (2007) analyze stochastic and dynamic two-player contests with complete information. They characterize Markov perfect equilibria and find that the effort of the leader increases in his lead up to some threshold above which the laggard resigns.…”