Innovation Flashcards
what is process and product innovation?
process innovation:
investment in labs searching for cost reducing technologies for a certain product
product innovation:
the search for new technologies for producing new products
what is Drastic innovation vs nondrastic?
Drastic:
allows innovator to behave as a monopolist without price competition
non drastic:
innovator may gain some cost advantage but ultimately competes on prices
what is the replacement effect?
If the firm introduce a new superior version of his product, it cannibalises its own profit.
who has greater incentoives to invest in R&D
perfect competetion does to gain an edge, oligopolies do only when there is not too few or too many firms, monopolies without competition e.g windows wont need to since theyalready enjoy large profits
where would innovation be most common?
in market segments with strong competetion, not where one firm sits and enjoys market power
xbox vs windows
what is the optimal market for innovation?
From a Schumpeterian point of view the optimal mkt is not perfect competition but a dynamic competition.
what is schumpter’s view
creative destruction: in the SR
there will be a degree of mkt power.Temporary
though (since potential competition from new
product/process innovation).
what does intensity of competetion depend on? (3)
Number of firms
Degree of product differentiation
Type of competition (price or quantity).
in the case of certain entry into the market what will happen?
the monopolist will invest in R&D as it has greater incentives than any encumbant. the monopolist has more to lose than the entrant has to gain
unless rival brings highly differentiated product
in the case of uncertain entry, what will happen?
the monopolist has less incentive to invest in R&D as
what is the effeciency effect?
monopolists invest in R&D to deter entrants
under drastic innovation who is willing to pay more?
entrant is willingf to pay up to the monopolist profit as it will replace the monopolist, whereas monopolist will only pay (1-p)pim
what is a socially optimal R&D investment?
when one firm invests,
Since a firm ignores the effect of its R&D efforts on the rival’s profits, imperfectly competitive firms tend to overinvest.
the cost of R&D duplication is
larger than the expected benefits stemming from the increase in the probability of finding the new product
what are the two types of intellectual property protection
Industrial property (inventions, business methods,formulas)
copyright
what is the objective of IP rights
promotion of innovation and crreativity, granting exclusive use of protected knowledge
