Hong Luo

Assistant Professor of Business Administration

Unit: Strategy

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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
  2. 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 US patent applications to 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 US 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: Patents; Biotechnology Industry;

    Citation:

    Hegde, Deepak, and Hong Luo. "Patent Publication and the Market for Ideas." Working Paper, February 2016. (Accepted for publication in Management Science.) View Details
  3. Copyright Infringement in the Market for Digital Images

    Hong Luo and Julie Holland Mortimer

    Digital technologies for sharing creative goods create new opportunities for copyright infringement and challenge established enforcement methods. We establish several important facts about the nature of copyright infringement and efforts to settle past infringing use in the market for digital images. Infringement in this, and many other markets, is often uninformed: users may be unaware that their use infringes, and may lack information about the price of a license. The uninformed nature of infringement implies that price may not be the primary factor in the decision to settle past use; in contrast, non-price factors may significantly affect settlement outcomes.

    Citation:

    Luo, Hong, and Julie Holland Mortimer. "Copyright Infringement in the Market for Digital Images." American Economic Review: Papers and Proceedings 106, no. 5 (May 2016). View Details

Working Papers

  1. Copyright Enforcement: Evidence from Two Field Experiments

    Hong Luo and Julie Holland Mortimer

    Effective dispute resolution is important for reducing private and social costs. We study how resolution responds to changes in price and communication using a new, extensive dataset of copyright infringement incidences by firms. The data cover two field experiments run by a large stock-photography agency. We find that substantially reducing the requested amount generates a small increase in the settlement rate. However, for the same reduced request, a message informing infringers of the price reduction and acknowledging possible unintentionality generates a large increase in settlement; including a deadline further increases the response. The small price effect, compared to the large message effect, can be explained by two countervailing effects of a lower price: an inducement to settle early but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage settlement due to the typically inadvertent nature of these incidences. The resulting higher settlement rate prevents additional legal action and reduces social costs.

    Keywords: Lawsuits and Litigation; Copyright;

    Citation:

    Luo, Hong, and Julie Holland Mortimer. "Copyright Enforcement: Evidence from Two Field Experiments." Harvard Business School Working Paper, No. 16-024, July 2015. (Revised February 2016.) View Details
  2. Invest in Information or Wing It? A Model of Dynamic Pricing with Seller Learning

    Guofang Huang, Hong Luo and Jing Xia

    Pricing idiosyncratic products is often challenging because the seller, ex ante, lacks information about the demand for individual items. This paper develops a model of dynamic pricing for idiosyncratic products that features the optimal stopping structure and a seller that learns about item-specific demand through the selling 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 demand information that the dealer obtains through the initial assessment and subsequent learning in the selling process. With the dealer's average net profit per car in the estimation sample being around $1150, the initial assessment is worth around $101, and the subsequent learning in the selling process helps improve the dealer's profit by at least $269. These estimates suggest a potentially high return to taking the "information-based" approach to pricing idiosyncratic products.

    Keywords: dynamic pricing; idiosyncratic products; item-specific demand; demand uncertainty; active seller learning; the value of information; Information; Demand and Consumers; Price; Value;

    Citation:

    Huang, Guofang, Hong Luo, and Jing Xia. "Invest in Information or Wing It? A Model of Dynamic Pricing with Seller Learning." Harvard Business School Working Paper, No. 16-027, September 2015. View Details
  3. Tort Reform and Innovation

    Alberto Galasso and Hong Luo

    Current academic and policy debates focus on the impact of tort reforms on physicians’ behavior and medical costs. This paper examines whether these reforms also affect incentives to develop new technologies. We find that laws which limit the liability exposure of healthcare providers are associated with a 13 percent reduction in medical device patenting. Tort reforms have the strongest impact in medical fields in which malpractice litigation is more frequent, and do not seem to affect the propensity to develop technologies of the highest and lowest quality. Our results underscore the importance of considering dynamic effects in economic analysis of tort laws.

    Keywords: innovation; Tort Reform; medical devices; Lawsuits and Litigation; Laws and Statutes; Innovation and Invention; Medical Devices and Supplies Industry;

    Citation:

    Galasso, Alberto, and Hong Luo. "Tort Reform and Innovation." Harvard Business School Working Paper, No. 16-093, February 2016. (Please contact the authors to request copy of this paper.) View Details
  4. Slack Time and Innovation

    Ajay Agrawal, Christian Catalini, Avi Goldfarb and Hong Luo

    Traditional innovation models assume that new ideas are developed up to the point where the benefit of the marginal project is just equal to the cost. Because labor is a key input to innovation, when the opportunity cost of time is lower, such as during school breaks or time off from work, then such models predict that the number of ideas developed will be greater, but the average quality will be lower due to the lower expected value of marginal ideas. However, we posit that slack time such as school breaks may be qualitatively different than work time because contiguous blocks may be particularly beneficial for working on complex projects. We present a model incorporating this idea that predicts that although more ideas will be produced during slack time, they will have higher average complexity and perhaps even higher average value. Using data on 165,410 projects posted on Kickstarter (2009–2015), we report findings consistent with the model's predictions.

    Keywords: crowdfunding; entrepreneurship; slack time; internet; Quality; Internet; Entrepreneurship; Innovation and Invention;

    Citation:

    Agrawal, Ajay, Christian Catalini, Avi Goldfarb, and Hong Luo. "Slack Time and Innovation." Harvard Business School Working Paper, No. 16-106, March 2016. View Details

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.