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Demand structure and the incentive to innovate

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  • Weng, Ming-Hung

Abstract

Recently, it has been shown that an outside innovator of a significant innovation is best off selling his patent rights to an incumbent firm who can then license the innovation to some other firms. Using this strategy of the outside innovator we show that as the number of firms in the industry increases, the incentive to innovate increases if the demand is strictly convex, decreases if the demand is strictly concave and does not change if the demand is linear.

Suggested Citation

  • Weng, Ming-Hung, 2012. "Demand structure and the incentive to innovate," Mathematical Social Sciences, Elsevier, vol. 63(3), pages 248-251.
    • Handle: RePEc:eee:matsoc:v:63:y:2012:i:3:p:248-251
    DOI: 10.1016/j.mathsocsci.2012.03.002
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    References listed on IDEAS

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    1. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    2. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    3. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 471-491.
    4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    5. Tauman, Yair & Weng, Ming-Hung, 2012. "Selling patent rights and the incentive to innovate," Economics Letters, Elsevier, vol. 114(3), pages 241-244.
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