R&D Contests with Head Starts

R&D contest have been very prevalent in the real world. In many competitions, some firms have some head starts. This topic derives from some phenomena observed in the market. On one hand, many companies, such as Nokia, that once ruled the roost of their respective industries got knocked off by more innovative competitors and came crashing down. On the other hand, some companies, such as Tesla, gave up patents for their technologies in early stages of their business. What is the role of a head start in a research contest? Can a head start hurt a firm? Attempting to answer the above questions, in this project, we study the effects of head starts in R&D contests. We analyze a two- firm winner-takes-all contest in which each firm decides when to stop a privately observed search for innovations (with recall). The firm with a superior innovation at the outset has a head start. The firm with the most successful innovation at a common deadline wins. We fully analyze this game and identify the conditions under which head starts benefit the head start firms and the conditions under which head starts hurt them. Comparisons will be made to the cases with cost advantages. We also extend to analyze the cases with endogenous head starts and intermediate information disclosure policies.