Hong Luo - Faculty & Research - Harvard Business School
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Hong Luo

James Dinan and Elizabeth Miller Associate Professor of Business Administration


Hong Luo is the James Dinan and Elizabeth Miller Associate 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.

Journal Publications and Edited Volumes
  1. Punishing Robots: Issues in the Economics of Tort Liability and Innovation in Artificial Intelligence

    Alberto Galasso and Hong Luo

    Citation:

    Galasso, Alberto, and Hong Luo. "Punishing Robots: Issues in the Economics of Tort Liability and Innovation in Artificial Intelligence." In The Economics of Artificial Intelligence, by Ajay K. Agrawal, Joshua Gans, and Avi Goldfarb. University of Chicago Press, forthcoming.  View Details
  2. 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; Innovation and Invention; Labor; Projects; Complexity; Value;

    Citation:

    Agrawal, Ajay, Christian Catalini, Avi Goldfarb, and Hong Luo. "Slack Time and Innovation." Organization Science (forthcoming).  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 develop a theoretical model that predicts that the impact of reducing liability risks for physicians on innovation may be positive or negative, depending on the characteristics of the technology. Empirically, we find that, on average, laws that limit the liability exposure of healthcare providers are associated with a significant reduction in medical device patenting. Tort reforms have the strongest impact in medical fields in which the probability of facing a malpractice claim is the largest, and they do not seem to affect the amount of new technologies of the highest and lowest quality. Our results underscore the importance of considering dynamic effects in the economic analysis of tort laws.

    Keywords: Governing Rules, Regulations, and Reforms; Health Care and Treatment; Technological Innovation; Legal Liability; Medical Devices and Supplies Industry;

    Citation:

    Galasso, Alberto, and Hong Luo. "Tort Reform and Innovation." Journal of Law & Economics 60, no. 3 (August 2017): 385–412.  View Details
  4. 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 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 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 10 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: licensing; patent publication; invention disclosure; Patents; Information Publishing; Innovation and Invention; Knowledge Dissemination;

    Citation:

    Hegde, Deepak, and Hong Luo. "Patent Publication and the Market for Ideas." Management Science 64, no. 2 (February 2018): 652–672.  View Details
  5. 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 the possible unintentionality generate a large increase in the settlement rate; 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 significantly reduces social costs.

    Keywords: Copyright; Law Enforcement; Lawsuits and Litigation; Cost;

    Citation:

    Luo, Hong, and Julie Holland Mortimer. "Copyright Enforcement: Evidence from Two Field Experiments." Journal of Economics & Management Strategy 26, no. 2 (Summer 2017): 499–528.  View Details
  6. 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 of their use infringement, and they 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.

    Keywords: Technology; Creativity; Copyright;

    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): 140–145.  View Details
  7. 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. How Does Product Liability Risk Affect Innovation? Evidence from Medical Implants

    Alberto Galasso and Hong Luo

    Liability laws designed to compensate for harms caused by defective products may also affect innovation incentives. This paper examines this issue, exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical devices implanted in human bodies. Difference-in-differences analyses suggest that the surge in liability risk had a large and negative impact on downstream innovation in medical implants but no significant effect on upstream polymer patenting. These findings show how tort laws may affect the development of new technologies and how liability risk may percolate through an industry’s vertical chain.

    Keywords: product liability; innovation; tort; medical devices; vertical foreclosure; Legal Liability; Innovation and Invention; Laws and Statutes; Medical Devices and Supplies Industry;

    Citation:

    Galasso, Alberto, and Hong Luo. "How Does Product Liability Risk Affect Innovation? Evidence from Medical Implants." Harvard Business School Working Paper, No. 19-002, July 2018.  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
Cases and Teaching Materials
  1. Redfin: Redefine Real Estate

    Hong Luo and Huafeng Yu

    Founded in 2004, Redfin envisioned a light-touch model in which clients self-served using the digital platform in exchange for a significantly lower fee than traditional agents. Realizing the narrow appeal of its initial model, Redfin had made significant changes to its strategy while maintaining some key distinctive choices. As of 2016, Redfin served in more than 80 markets throughout the U.S., employed over 700 full-time agents, and had grown over 40% annually since 2014. With additional capital raised through an IPO, Glenn Kelman faced decisions on how to allocate these resources in order to grow. Should Redfin adjust its advertising strategy? Should it reconsider the policy of hiring lead agents only as full-time employees? Should Redfin purchase homes and hold inventories?

    Keywords: Adaptation; Growth and Development Strategy; Decision Choices and Conditions; Real Estate Industry; North America;

    Citation:

    Luo, Hong, and Huafeng Yu. "Redfin: Redefine Real Estate." Harvard Business School Case 718-430, November 2017. (Revised January 2018.)  View Details
  2. UFO Moviez—Gentle Disruption

    Hong Luo, Felix Oberholzer-Gee and Saloni Chaturvedi

    UFO Moviez is an Indian technology services provider that enables low-cost, digital delivery of films to cinemas. UFO’s satellite-based technology enables a significantly wider release of films compared to traditional analog prints and standard, higher-resolution digital prints that must be transported physically. By 2015, 54% of all cinemas in India were using UFO’s digital cinema system. UFO has achieved this without upsetting the industry’s value chain of producer–traditional distributor–cinema-owner. The company earns revenue through three main streams: fees charged to the producer/distributor for converting films to digital format and distributing them over satellite, fees charged to the cinema owner for leasing the projection systems, and advertising revenue from ads shown during the screening of films. With cinemas in India mostly digitized, however, UFO faces challenges for continual growth. Should UFO focus on increasing its advertising revenue, leveraging UFO’s core technology in other areas, or entering the business of film distribution?

    Citation:

    Luo, Hong, Felix Oberholzer-Gee, and Saloni Chaturvedi. "UFO Moviez—Gentle Disruption." Harvard Business School Case 716-447, March 2016. (Revised May 2016.)  View Details