Most entrepreneurs need to cooperate with another party in order to commercialize their ideas. Professor Luo explores how far entrepreneurs should develop their ideas before selling them. The stakes are high: without this understanding, many promising ideas could be wasted, and investors could falter in bringing entrepreneurs’ ideas to market.
While Professor Luo studies this issue in the context of the U.S. film industry, her findings have broad strategic applicability to a variety of sectors, including research alliances, technology licensing, and venture-capital financing. In Hollywood, a screenwriter must decide whether to sell a storyline for a movie or a complete script – that is, to time the sale early or late in the development process. In her analysis, Professor Luo has employed a model that incorporates key features of a market for ideas. She then tested the model’s predictions against a novel data set of original movie ideas sold in Hollywood over an eight-year period. The empirical findings mirror the model’s predictions. Inexperienced screenwriters are excluded from the market for earlier-stage ideas (storylines), so their only options are to develop their ideas into complete scripts or to abandon them. Experienced writers with more choice develop their best ideas to sell as scripts and market the rest as storylines.