| Abstract: |
Numerous studies have examined how market structure affects appropriability of
R&D returns and, in turn, R&D investment and innovation speed. Less effort has
been spent on the opposite relationship which is instead our focus. In a
continuous time model, two firms compete in R&D, with the leading patent
affecting the probability of success of a second patent (competing in the same
product market); the size and the direction of this effect depends on the
level of appropriability, which, unlike previous research, connects
competition in R&D and competition in the product market. We find that low
appropriability delays R&D investments and thus discovery, with the (future)
benefit of a more competitive product market. Secondly, we show that the
relation between concentration in R&D and concentration in product markets can
be positive or negative depending on the probability of success of an
innovation and its level of appropriability. Also, we find that an increase in
the probability of success of innovation does not necessarily speed up
investment in R&D. |