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Model predicts how to get ahead in the research stakes

31 August 2005

The conundrum over whether to share interim research results or play your cards close to your chest has been answered, the 2005 World Congress of the Econometric Society, which is hosted by UCL (University College London), will hear today.

Dr David Gill of Trinity College, Oxford University , has developed the first model that predicts whether academics or industry research and development (R&D) should release their results under particular market conditions. He says the model could be adopted as a ‘best practice' model of how to operate.

Economists have attempted to tackle the issue before but have treated the question in absolute terms: you either have good results or not. Instead, Dr Gill considered the spectrum of results all the way from poor to excellent. Crucially the decision on whether to share information depends on whether you're a market leader, and how tough competition is.

“We found that despite the help that disclosure can give to a rival, the leading innovator sometimes chooses to disclose,” explains Dr Gill.

“Disclosure signals commitment to the research project, which may induce a rival to exit. With weak product market competition, the leader discloses intermediate results that are sufficiently promising, while secrecy is employed for very good results. As knowledge transfers from disclosure increases, the leader becomes more secretive. With strong product market competition, the leader relies entirely on secrecy but perhaps surprisingly invests more often at the intermediate stage.”

Dr Gill analysed incentives to disclose intermediate research results in a two stage R&D programme. When an innovator reaches an intermediate stage in the research ahead of the competition they have to decide whether to ditch the research project or invest in a second stage.

The main novelty of the model is that the leader can also choose to disclose their intermediate results to the follower, who has yet to reach the intermediate stage. Disclosure has two effects: it may help the follower, depending on the level of knowledge transfers and on whether the follower's intermediate results turn out to be more or less promising than the leader's.

Secondly, disclosure signals to the follower that the leader is committed to the research project, which may induce the rival to exit the competition.

By analysing this trade-off using a form of game theory, Dr Gill was able to determine the best strategy, under given market conditions, when the leader should disclose results to try to induce the rival to quit.

Disclosure of intermediate research results is a common strategy, and can take a number of forms. Firms may pre-announce their products by describing in some detail the expected final features of the new product or demonstrating a prototype at a trade show. Alternatively, they can publish intermediate research findings in a commercial disclosure service or in the case of academia present their findings at a conference. Or they may simply issue press releases or make other public statements.

“Preannouncements with long lag to launch are common in the software industry and marketing literature recognises that they can be designed to force rivals to exit the innovation race,” added Dr Gill.

“For example, Microsoft's preannouncements of software have been considered as pre-emptive, and unfair to competitors.”

Dr David Gill of Trinity College , Oxford University will present the paper, ‘Strategic disclosure of intermediate research results' on Saturday 20 August 2005 between 11.15 and 12.45.

A copy of the paper is available on request from the UCL press office.

For further information, please contact:

Dr David Gill
Trinity College, Oxford University
Email: david.gill@economics.oxford.ac.uk
Tel: +44 (0)18652 81482
Mobile: Tel: +44 (0)18652 81482

Judith H Moore
UCL Media Relations Manager
Tel: +44 (0)20 7679 7678
Mobile : +44 (0) 77 333 075 96
Email: Judith.moore@ucl.ac.uk

Notes to Editors

About the World Congress of the Econometrics Society

The Econometric Society is the leading international learned society in the field of economics, and its quinquennial world congress is recognised as the most prestigious in economics. UCL is hosting the ninth Econometric Society World Congress from 18-24 August 2005, which is the first time the Congress has been held in London and has not been hosted by a UK institute for 35 years. A full copy of the programme can be accessed on the 2005 Econometric Society World Congress website: http://www.eswc2005.com/

About the UCL Department of Economics

The Chair of Political Economy at UCL was created in 1828 establishing the first Department of Economics in England . The modern department has an outstanding international reputation in key areas of current research including applied theory, microeconometrics, game theory, labour economics, development economics, macroeconomics, industrial economics and environmental economics. It is one of only four economics departments in the UK to achieve the 'double 5*' rating in the two most recent (2001) national Research Assessment Exercises (RAE).