Strategic Concealment in Innovation Races

Department of Decision Sciences and Managerial Economics

We investigate firms’ incentives to conceal intermediate research discoveries in innovation races. To study this, we introduce an innovation game where two racing firms dynamically allocate their resources between two distinct research and development (R&D) paths towards a final innovation: (i) developing it with the currently available but slower technology; (ii) conducting research to discover a faster new technology for developing it. We fully characterize the equilibrium behavior of the firms in the cases where their research progress is public and private information. Then, we extend the private information setting by allowing firms to conceal or license their intermediate discoveries. We show that when the reward of winning the race is high enough, firms would conceal their interim discoveries, which inefficiently retards the pace of innovation.