Chapter 15 Flashcards
Measuring innovation
MIPS (millions of instructions per second) is very objective and it is not clear what the value of an increase in MIPS is.
Measure the increase in market valuation for the processes, products and services resulting from innovation.
Data on patents
Market structure and innovation incentives
Schumpeter Mark I: the idea that small entrepreneurs are the main engine of innovation
Schumpeter Mark II: The idea that large corporations are responsible for a disproportionate fraction of all innovation
Creative destruction
Perfect competition implies efficient resource allocation in a static sense, but that optimally breaks down when one takes dynamic efficiency into consideration.
It implies that the optimal system is one of dynamic competition where, in the short run there will always be some degree of market power - temporary market power.
Firm scale and scope
The view that large firms are the main source R&D and technological progress is primarily based on the observation that large firms have more resources to invest than small firms. + Economies of scope, economies of scale, and spread the risks from large innovation projects.
Innovation strategy
Includes:
The nature or markets for technology
The interplay between market leadership and technological leadership
The trade-off between risk and return
The importance of internal organization
Defense versus attack
The threat of imitation and rent dissipation is one of the principal challenges facing an innovator. It can be prevented by property rights and a policy of secrecy.
Joint profit effect or pre-emption effect
Implies that there is a tendency for the technology leader to maintain its leadership position.
Replacement effect
The self-cannibalization that always takes place when a firm introduces new, improved versions of its own product
Leading firms and laggard
Leading firms have a greater incentive to innovate when the threat of competition by a laggard is high. Otherwise, leadings firms have a lower incentive to innovate (replacement effect).
Creative destruction
Incumbents tend to invest relatively more in gradual innovations, while entrants are the main source of drastic innovations.
Patent system
An optimal patent system balances the benefits from greater innovation incentives against the potential costs of increased market power; and the benefits of disclosing the state of art against the cost of hindering follow-up innovations
Patent thickets
A long list of patent rights that those seeking to commercialize a new technology must deal with.
Patent trolls/patent-assertion entities (PAEs)
Corporations whose primary assets are patent portfolios and whose primary business model is to generate revenues by licensing and by suing alleged patent infringers
Positive PAEs: intermediaries that make markets for technology work
Negative PAEs: are responsible for a large share of the enormous increase in patent litigation
Patent pool
The idea is that owners of multiple patents come together and sell their wares in a single package.
Poorly defined patents, as well as complex systems of complementary patents, create incentive problems for innovators. Patents pools alleviate some incentive problems may create additional ones
Spillovers and R&D agreements
Interfirm R&D agreements may have the virtue of alleviating the free-rider problem. However, they may also increase the degree of product market conclusion
