posted on 2024-05-14, 09:56authored byKaustav DasKaustav Das, Nicolas Klein, Katharina Schmid
We study a two-player game of strategic experimentation with exponential bandits à la (Keller et al., 2005) where the safe-arm payoff is different across players. We show that, as in Das et al. (2020), there exists an equilibrium in cut-off strategies if and only if the difference in safe-arm payoffs is large enough. In the equilibrium in cutoff strategies, the player with the higher safe-arm payoff conducts less experimentation. This feature of the equilibrium offers an explanation for the fact that oftentimes technological innovations are due to startups rather than established market leaders.
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College of Social Sci Arts and Humanities/School of Business