Abstract

ate when revenues start to come in, but this may still raise the firm's net present value because investment is irreversible and information can help the firm avoid a costly mistake. In this sense the information is an intangible investment that raises the firm's efficiency. Pharmaceuticals are, perhaps, the only business in which one can so sharply separate the information-gathering stage from the production stage, and even there, the IPO does not coincide exactly with the start of production. Elsewhere, learning and production take place more or less simultaneously; the firm starts small, it learns a little, adds capacity, learns a little more, adds more capacity, changes its product a little, finds new suppliers, invests and hires a few more people, then learns a little more, and the process goes on. The firm defines itself by the investments that it makes and loses flexibility gradually. Here we assume that all investment occurs at the IPO date, and that only then does the firm st

Citations