A War of Attrition with Experimenting Players*

<p>A standard incomplete-information war of attrition is extended to incorporate experimentation. We obtain a characterization of all equilibria in this extended setup and use this setup to illuminate a tradeoff between short-run and long-run gains of experimentation. The extension yields qualitative impacts on the strategic nature of the problem. The option value of experimentation serves as a credible commitment device to stay in the game, which is instrumental in inducing the other player to concede earlier. As a direct consequence, there may be an equilibrium in which the strictly less efficient player, but with a higher margin of experimentation, can get the better end of the deal. This result leads to an important empirical implication since the margin of experimentation is not directly observable, even <i>ex post</i>. Our analysis also gives insight into why an apparently inferior technology often survives in standards competitions and more broadly offers implications for technology adoption and industry dynamics.</p>