We study a winner-take-all R&D race where ﬁrms are privately informed about the uncertain arrival rate of the invention. Due to the interdependent-value nature of the problem, the equilibrium displays a strong herding eﬀect that distinguishes our framework from war-of-attrition models. Nonetheless, equilibrium expenditure in R&D is sub-optimal when the planner is suﬀiciently impatient. Pessimistic ﬁrms prematurely exit the race, so that the expected discounted amount of R&D activity is ineﬀiciently low. This result stands in contrast to the overinvestment in research that is typical of winner-take-all R&D races without private information. We conclude that secrecy in R&D ineﬀiciently slows down the pace of innovation.
Moscarini, Giuseppe and Squintani, Francesco, "Competitive Experimentation with Private Information" (2004). Cowles Foundation Discussion Papers. 1771.