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on Technology and Industrial Dynamics |
| By: | Velu, C.; Iyer, S. |
| Abstract: | Do dominant or less dominant firms innovate more? Theoretically it has been shown that within an asymmetric mixed strategy game of a patent race, the less dominant firm invests more than the dominant firm. But the empirical data on patent races is divided. In this paper, we argue that the decisions that concern strategic choice in innovation may be influenced by expected relative returns. Our approach, which we call the returns-based beliefs approach, is based upon subjective probabilities. It combines a decision analytic solution concept and Luce’s (1959) probabilistic choice model. In particular, we show how the use of the returns-based beliefs approach provides support for the thesis that dominant firms invest more in R&D within an asymmetric mixed strategy game. Consequently, we argue that the returns-based beliefs approach is more in line with recent empirical studies of innovation. We also provide empirical evidence using UK R&D data across a range of industries from 2001-2006 that shows that firms’ spending on R&D is related more to their own profitability than that of their competitors, which is consistent with the returns-based beliefs approach. We discuss the managerial implications of our theoretical approach and the empirical findings. |
| Date: | 2010–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1009&r=tid |
| By: | Andrea Mantovani; Alireza Naghavi |
| Abstract: | This paper studies the consequences of parallel import (PI) on process innovation of firms heterogeneous in their production technology. In an international setting where foreign markets differ with respect to their intellectual property rights regime, a move by a technologically inferior firm to exploit a new unregulated market can result in imitation and PI. The impact of PI on innovation is determined by the degree of heterogeneity between firms and trade costs. Increasing trade costs shifts from the market share losses brought by PI from the more to the less productive firm. This induces the former to invest more in R&D. At this point, sales in the foreign market become a determinant of the R&D decision by the technologically inferior firm. For low levels of firm heterogeneity, PI increases output by this ?rm targeted for the unregulated market, hence increases its Innovation efforts. A tariff policy accompanied by opening borders to PI only increases welfare when the technological gap between the two firms are suffciently large. |
| Keywords: | Intellectual property rights; Parallel imports; Innovation; Trade costs; Welfare |
| JEL: | F12 F13 L11 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:038&r=tid |