Hong Luo

Assistant Professor of Business Administration

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.

Working Papers

  1. Imperfect Information, Patent Publication, and the Market for Ideas

    In this study, we investigate the role of an important information-disclosure mechanism—patent publication—in facilitating transactions in the market for ideas. We do so by analyzing the effects of the American Inventor's Protection Act (AIPA) of 1999, which required, as of November 29, 2000, that U.S. patent applications be published 18 months after their filing rather than at the time of patent grant. We develop a simple theoretical framework that yields predictions about the effects of AIPA on the timing of licensing. We then test the predictions using a sample of 339 licenses of biomedical inventions protected by patent applications filed between 1995 and 2005. Consistent with the predictions, we find that post-AIPA patent applications experience a sharp increase in the probability of licensing after 18-month publication, and, on average, are 18 percentage points less likely than pre-AIPA patent applications to wait until allowance to be licensed. Even for patent applications that are not licensed until allowance, 18-month publication shortens the time to licensing. Overall, for inventors that choose to license, 18-month publication accelerates licensing by 8.5 months on average. We conclude that information disclosure through patent publications plays an important role in facilitating 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. "Imperfect Information, Patent Publication, and the Market for Ideas." Harvard Business School Working Paper, No. 14-019, September 2013. View Details
  2. Invest in It or Wing It? The Value of Informed Pricing in the Secondary Market

    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;

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

    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: Decision Choices and Conditions; Innovation and Invention; Intellectual Property; Mathematical Methods; Sales; Creativity; Value; Motion Pictures and Video Industry;

    Citation:

    Luo, Hong. "When to Sell Your Idea: Theory and Evidence from the Movie Industry." Harvard Business School Working Paper, No. 12-039, November 2011. (Revised April 2014; View Online Appendix; Management Science, accepted.) View Details

Cases and Teaching Materials

  1. CarMax: Disrupting the Used-Car Market

    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 October 2014.) View Details