3 Profiting from Innovation Flashcards
What is an appropriability regime and why is it important for innovators?
An appropriability regime refers to the set of environmental factors—legal and technical—that determine an innovator’s ability to capture returns from an innovation. A “tight” regime (e.g., strong patents, hard-to-imitate technology) aids innovators in profiting from their work, while a “weak” regime makes it easier for competitors to imitate, potentially allowing others to gain more from the innovation than the original inventor.
How do complementary assets affect who profits from an innovation?
Complementary assets—such as specialized manufacturing, distribution, and service channels—are often required to commercialize a new technology. When imitators or other players own or control these critical assets, they can capture a significant share of the profits, even if they did not originate the innovation. Thus, control or access to complementary assets is crucial for innovators seeking to profit fully from their inventions.
What is the dominant design paradigm, and how does it impact innovators’ profits?
The dominant design paradigm suggests that, after a period of competing product variations, one design emerges as a market standard. Once this occurs, competition shifts from product features to scale, manufacturing efficiency, and complementary services. If the innovator’s initial design is not the one that becomes dominant, or if it cannot quickly scale and align with complementary assets, imitators may outmaneuver the original innovator and claim the majority of profits.
In a weak appropriability regime, what strategic decisions can help an innovator capture more value from their innovation?
In weak appropriability regimes, innovators should focus on securing or controlling specialized and co-specialized complementary assets—through integration, partnerships, or strategic investments—to prevent imitators from leveraging these assets first. Correctly choosing whether to integrate (build or acquire assets) or contract (license or partner) is critical. Owning key complementary assets or aligning with strong partners can help innovators maintain a competitive advantage and capture more of the profits.
How can the appropriability regime affect an innovator’s ability to capture value from innovation?
The appropriability regime, determined by intellectual property rights and technological complexity, shapes how easily innovations can be imitated. In strong regimes, innovators can protect and license their ideas effectively, while in weaker regimes they must rely on strategies like owning complementary assets or shaping the industry context to preserve profits.
What role does industry architecture play in determining who profits from an innovation?
Industry architecture, defined by how value chain activities and components are structured and integrated, influences where in the system profits accrue. In more modular architectures, component-level innovators may capture more value if they hold strong IP. In more integral architectures, system-level integrators have greater leverage to secure profits.
Why might a firm deliberately weaken the appropriability regime surrounding its innovation?
Firms may weaken the appropriability regime (for example, by placing technology in the public domain) to prevent others from blocking their access to key inputs or complementary technologies. By doing so, they ensure freedom to operate and capitalize on their co-specialized assets rather than risk lock-up by patent holders further upstream.
How can shaping industry standards and architecture enhance an innovator’s value capture?
By influencing standards, platforms, or modular interfaces, innovators can tilt the industry architecture in their favor. For example, encouraging open industry standards may broaden adoption of their technology. Aligning these standards with the firm’s IP or capabilities can steer value toward them, make imitation harder, and help them profit more fully from their innovations.
