ch 15 Flashcards
Invention
the discovery of a product or process.
patent
government grants inventors the exclusive right to sell a product
Product Innovation (Allocative Efficiency)
new/improved products or services
Process Innovation (Productive Efficiency)
new/improved production or distribution methods
Diffusion
the spread of an innovation through imitation or copying. New and existing firms copy or imitate successful innovation of other firms to profit from new opportunities or to protect their profits.
Fast-Second Strategy
dominant firm quickly imitates successful new product of smaller competitors.
Entrepreneurs
an initiator, innovator, and risk-bearer. There may be key people involved in the pursuit of innovation, but who do not bear personal financial risk (key executives, scientists) - intrapreneurs.
Start-ups
entrepreneurs often form small new companies that create and introduce a new product or production technique.
Spin-offs
Innovators are found within existing corporations. R&D in major corporations has resulted in technological improvements, often by splitting off units to form new, more flexible and innovative firms.
Venture Capital
sources available to finance a firm’s R&D • Bank loans • Bonds • Retained earnings • Personal savings
Interest Rate Cost of Funds Curve vs.
Expected Rate of Return Schedule
Optimal amount of R&D is point where interest-rate cost-of-funds curve and expected-rate-of-return curve intersect.
Creative Destruction
creation of new products and production methods can simultaneously destroy the monopoly position of firms protecting existing products and methods of production
Inverted U Theory of R&D
suggests R&D effort is weak in industries with very low (pure competition) and very high (pure monopoly) concentration
