Hong Luo

Assistant Professor of Business Administration

Unit: Strategy

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(617) 384-5646

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Hong Luo is an Assistant Professor of Business Administration in the Strategy Unit. She teaches the Strategy course in the MBA required curriculum.

Professor Luo’s research explores how innovators develop and commercialize their ideas, with an emphasis on how far an entrepreneur should develop an idea before selling it. Her findings have strategic implications both for the entrepreneurs and for the firms or investors who acquire their ideas.

Professor Luo received her Ph.D. in Economics from Stern School of Business, New York University, where she was a recipient of the Kauffman Dissertation Fellowship in Entrepreneurship Research. A native of China, she earned an MA in Economics from Beijing University and a BA in Finance from Renmin University of China.

Featured Work

Publications

Journal Articles

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

    Hong Luo

    I study a model of investment and sale of ideas and test its empirical implications using a novel data set from the market for original movie ideas. Consistent with the theoretical results, I find that buyers are reluctant to meet unproven sellers for early-stage ideas, which restricts sellers to either developing the ideas fully (to sell them later) or abandoning them. In contrast, experienced sellers can attract buyers at any stage and they sell worse ideas sooner and better ideas later. These results have important managerial implications for buyers and sellers and show that, in such contexts, policy interventions that discourage buyer participation—such as stronger intellectual-property protection—may diminish the market for ideas and hurt inexperienced sellers.

    Keywords: Strategy; Intellectual Property; Film Entertainment; Sales; Entertainment and Recreation Industry;

    Citation:

    Luo, Hong. "When to Sell Your Idea: Theory and Evidence from the Movie Industry." Management Science 60, no. 12 (December 2014): 3067–3086. View Details

Working Papers

  1. Patent Publication and the Market for Ideas

    Deepak Hegde and Hong Luo

    In this paper, we study the effect of invention disclosure—through patent publication—on the market for ideas. We do so by analyzing the effects of the American Inventor's Protection Act of 1999 (AIPA), which required U.S. patent applications be published 18 months after their filing date rather than at patent grant, on the timing of licensing deals in the biomedical industry. We find that post-AIPA, U.S. patent applications are significantly more likely to be licensed before patent grant and shortly after 18-month publication. Licensing delays are reduced by about ten months, on average, after AIPA's enactment. These findings suggest a hitherto unexplored benefit of the patent system: by requiring inventions to be published through a credible, standardized, and centralized repository, it mitigates information costs for buyers and sellers and thus facilitates transactions in the market for ideas.

    Keywords: Market Transactions; Information; Patents; Investment; Innovation and Invention; Biotechnology Industry; United States;

    Citation:

    Hegde, Deepak, and Hong Luo. "Patent Publication and the Market for Ideas." Harvard Business School Working Paper, No. 14-019, September 2013. (Revised August 2015.) View Details
  2. Invest in It or Wing It? The Value of Informed Pricing in the Secondary Market

    Guofang Huang, Hong Luo and Jing Xia

    This paper studies the managerial problem of dynamic pricing in the secondary durable-goods market, where sellers typically have limited information about item-specific heterogeneity. It develops a structural model of dynamic pricing that features the seller learning about item-specific demand through initial assessment and active learning in the sale process. The model is estimated using novel panel data of a leading used-car dealership. Policy experiments are conducted to quantify the value of the dealer's initial information about item-specific demand and of lowering the price-adjustment cost. With the dealer's average net profit per car in the estimation sample being around $740, the initial information about item-specific demand worth roughly $243, and cutting the dealer's price-adjustment cost by half would increase its profit by about $103.

    Keywords: Information; Demand and Consumers; Goods and Commodities; Value; Asset Pricing; Auto Industry; Retail Industry;

Cases and Teaching Materials

  1. CarMax: Disrupting the Used-Car Market

    John R. Wells, Hong Luo and Galen Danskin

    In 2012, CarMax was the leading retailer of secondhand cars in the United States and a fast-growing competitor in the used car auction market. After its founding in 1993 by Circuit City's management, CarMax had grown rapidly. The company had been profitable since 2000 and independent from its parent company since 2002. While Circuit City went bankrupt in 2009 under pressure from Best Buy and challenging economic conditions, CarMax flourished and expanded through the economic crisis. Fiscal 2012 revenue reached $10.5 billion and net income, a record $413 million. However, CarMax still only accounted for less than 3% of the fragmented secondhand car market. Additionally, it was keen to avoid the fate of its parent and to stay ahead of copycat competitors. What should CarMax do to grow its market position and continue its success in used car retailing and auctioning?

    Keywords: Product Positioning; Business Growth and Maturation; Competitive Advantage; Auctions; Insolvency and Bankruptcy; Growth and Development Strategy; Service Industry; Auto Industry; Retail Industry;

    Citation:

    Wells, John R., Hong Luo, and Galen Danskin. "CarMax: Disrupting the Used-Car Market." Harvard Business School Case 713-467, January 2013. (Revised February 2015.) View Details

    Research Summary

  1. Timing and the Selling of Ideas

    by Hong Luo

    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.