Resource Allocation Among Competing Innovators

2023-02-02 Publications

Photo by Markus Winkler on Unsplash

Many innovative products are designed to satisfy the demand of specific target consumers; thus, the innovators will inevitably compete with each other in the product market. This paper investigates how a profit-maximizing principal should properly allocate her limited resources to support the innovations of multiple potentially competing innovators. The study finds that, as the available resources increase, the optimal diversification of investment may first increase and then decrease. This interesting nonmonotone pattern is driven by a trade-off between the risk of innovation failure and rent dissipation because of competition. Using this framework, this paper also analyzes a nonprofit principal seeking to maximize the total number of successful innovations, the probability of at least one innovator succeeding, consumer surplus, and total social welfare. A nonprofit principal tends to invest more diversely compared with a for-profit counterpart.

Key insights and policy recommendations out of this paper are discussed in the HKUST IEMS Thought Leadership Brief #46 authored by Sunny Yangguang Huang. Read the HKUST IEMS Thought Leadership Brief at

Yangguang Huang
Assistant Professor, Department of Economics
Faculty Associate, HKUST Institute for Emerging Market Studies
Yangguang (Sunny) Huang is an Assistant Professor of Economics at the Hong Kong University of…
Ying-Ju Chen
Chair Professor, Department of Information Systems, Business Statistics and Operations Management
Chair Professor, Department of Industrial Engineering and Decision Analytics
Ying-Ju Chen holds a joint appointment between School of Business and Management (Department of…
Pin Gao
Assistant Professor (School of Data Science), The Chinese University of Hong Kong - Shenzhen
Xiaoshuai Fan
Assistant Professor, Southern University of Science and Technology: Shenzhen, Guangdong, CN

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