Competitive Exposure and Entrepreneurial Experimentation -- by Joshua S. Gans

Entrepreneurs learn by experimenting, but experiment choices are often public. A closed beta, private pilot, or public launch not only generates evidence; it also reveals what kind of entrepreneur would choose that action. We develop a dynamic model in which a founder chooses between stealthy and public experiments while potential entrants infer from both actions and outcomes. Public outcomes are modelled as garblings of the founder's private experimental evidence, so public leakage informs outsiders without giving the founder information beyond the private signal already observed. The key state variable is competitive exposure: the public runway before entry becomes attractive. Exposure is depleted by two forces, leakage burn from public outcomes, and action burn from public inference about experiment choice. This distinction implies that competition can distort experiment design without forcing earlier scale: lower-confidence founders choose stealthier tests, while higher-confidence founders spend exposure to obtain faster private learning through more public tests. Scale is accelerated only when exposure reduces the value of waiting more than it reduces the value of scaling. Finally, exogenous funding gates make observable scale more selective and, therefore, more informative to entrants. The analysis shows that entrepreneurial experimentation is not merely private learning under uncertainty; it is public action under competitive inference.