Lecture 8 - R&D And Patents Flashcards
Why do firms innovate
To gain competitive advantage
- Allows for organic growth
What does Successful innovation allow firms to do
- Increase market share
- Increase profits
- Ensure survival
What act as drivers for innovation
- The fact firms are subject to uncertainty and imperfect information
Who’s the theorist who stressed the importance of the individual entrepreneur in the innovation process
Shumpeter
Schumpeter viewed innovation as ‘creative destruction’
What’s creative destruction
New products and new methods superseding the previous products and methods
Take their place, destroys the old
Shumpeter asserted that R&D is more often found among large or small firms
Large firms, like oligopolists and monopolists more likely to aggressively pursue innovation (potential benefits)
What’s the relationship between amount of innovation (y axis) and competitive intensity (x axis)
Inverted U-shape relationship
R&D consists of three core activities
1) Basic research: Focused on improving knowledge but may not have specific applications in mind
2) Applied research: Focused on specific application or use of research output
3) Development: Focus on movement from creation of prototype to finished product
Two types of innovations
1) Product innovations = Goods innovations E.g. creation of new product
2) Process innovations = Methods innovations E.g. creation of more efficient production process
- Process innovations come in drastic (Marginal cost drops drastically) and non-drastic (Marginal cost drops slightly) forms
Key criteria require for innovation to occur within a country or industry
- Availability of skilled labour
- Availability of capital and finance resources
- The role of culture including national culture and the culture within firms and industries
- The role of government and the national innovation system
What’s a national innovation system
Structures and institutions by which a country’s innovation activities are encouraged and facilitated, both directly and indirectly
National innovation system is dependent on what factors
- Government Policy
- Education and training
- Science and technology capabilities
- Industrial Structure
Market failure can occur in respect to innovation for a number of reasons
- R&D free-riding
- Market Structure: Monopoly power
- Duplication
- Risk and uncertainty
Solutions to failures include
- Public sector provision
- Subsidies
- Co-operative R&D
- Diffusion
- Patents
What’s patentable innovation
A new product or process which has industrial application
