When to Sell Your Idea: Theory and Evidence from the Movie Industry

When: Friday, June 21, 2013 at 2:00 pm
Where: DA 5th fl
Speaker: Professor Hong Luo
Organization: Harvard Business School
Sponsor: CCNR

TITLE

When to Sell Your Idea: Theory and Evidence from the Movie Industry

ABSTRACT

How completely should an innovator develop his idea before selling it? In the context of selling original movie ideas, I present a model that features the writer’s private information on the idea’s value, di↵erent protection levels associated with di↵erent development stages, as well as costly buyer participation. The empirical results are consistent with the model’s predictions: Inexperienced writers are excluded from the market for earlier-stage ideas, restricting their choices to developing the idea fully or abandoning it; writers who have a choice sell better ideas at a later stage and worse ideas at an earlier stage; and lastly, intermediaries facilitate earlier-stage sales for inexperienced writers.