We develop a model to capture the novelty of innovation and explore what it means for the nature of market competition and quality of innovations. An innovator decides not only whether to innovate but how boldly to innovate, where the more novel is the innovation — the more different it is from what has come before — the more uncertain is the outcome. We show in this environment that a variant of the Arrow replacement effect holds in that new entrants pursue more innovative technologies than do incumbents. Despite this, we show that the new entrant is less likely to disrupt an incumbent than the incumbent is to disrupt itself, and less likely to fail in the market. We extend the model to allow the incumbent to acquire the entrant postinnovation and show that this reverses the Arrow effect. The prospect of acquisition makes innovation more profitable but simultaneously suppresses the novelty of innovation as the entrant seeks to maximize her value to the incumbent. This reversal suggests a positive role for a strict antitrust policy that spurs entrepreneurial firms to innovate boldly.
-
Faculty
- Academic Areas
- Awards & Honors
- Seminars
-
Conferences
- Accounting Summer Camp
- California Econometrics Conference
- California Quantitative Marketing PhD Conference
- California School Conference
- China India Insights Conference
- Homo economicus, Evolving
-
Initiative on Business and Environmental Sustainability
- Political Economics (2023–24)
- Scaling Geologic Storage of CO2 (2023–24)
- A Resilient Pacific: Building Connections, Envisioning Solutions
- Adaptation and Innovation
- Changing Climate
- Civil Society
- Climate Impact Summit
- Climate Science
- Corporate Carbon Disclosures
- Earth’s Seafloor
- Environmental Justice
- Finance
- Marketing
- Operations and Information Technology
- Organizations
- Sustainability Reporting and Control
- Taking the Pulse of the Planet
- Urban Infrastructure
- Watershed Restoration
- Junior Faculty Workshop on Financial Regulation and Banking
- Ken Singleton Celebration
- Marketing Camp
- Quantitative Marketing PhD Alumni Conference
- Theory and Inference in Accounting Research
- Voices
- Publications
- Books
- Working Papers
- Case Studies
- Postdoctoral Scholars
-
Research Labs & Initiatives
- Cities, Housing & Society Lab
- Corporate Governance Research Initiative
- Corporations and Society Initiative
- Golub Capital Social Impact Lab
- Initiative for Financial Decision-Making
- Policy and Innovation Initiative
- Rapid Decarbonization Initiative
- Stanford Latino Entrepreneurship Initiative
- Value Chain Innovation Initiative
- Venture Capital Initiative
- Behavioral Lab
- Data, Analytics & Research Computing