An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Mehmet Ozbilgin
Baruch College

Abstract: Proprietary knowledge is widely regarded as a major source of competitive advantage. In spite of this, firms share their knowledge with rivals by issuing press releases, sharing information at conference presentations and presenting partially informative financial statement footnotes. I construct a model where knowledge shared by an industry leader with an entrant induces correlation into the firms’ chances of success. The leader can thus share knowledge to unduly influence the innovative efforts of the entrant and index its success to the leader’s. The amount of knowledge shared by the leader balances the cost of revealing proprietary knowledge against the benefit of distracting the rival’s innovative efforts. I also study a setting where the entrant can block external knowledge from permeating its organization. The results show that the entrant usually requires a minimum amount of shared knowledge and otherwise completely ignores the leader’s attempts for strategic knowledge sharing.

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