The Winner Curse and Social Inefficiency: Double Whammy of R&D Tournament

Abstract

In a R&D tournament setting with free entry and knowledge spillover, we show that the society would suffer from excessive entry and the patent holder would endure lower profits than non-patent holders because it bears the cost of commercializing and further technology development, while the other firms are beneficiaries of the spillover effects. This result is instructive to R&D and competition policy.

Keywords

• R&D tournament
• Excessive entry
• Insufficient entry