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On the Winner-Take-All Principle in Innovation Races

Author

Listed:
  • Vincenzo Denicolo
  • Luigi A. Franzoni

Abstract

What is the optimal allocation of prizes in an innovation race? Should the winner take all, or is it preferable that the original inventor shares the market with subsequent independent duplicators? Some recent papers in law and economics have argued that the latter, more permissive solution is socially preferable under mild conditions. We re-examine that issue, arguing that a permissive regime may turn the innovation race into a waiting game, reducing the power of incentives, and may invite socially wasteful duplicative R&D expenditures. In a model that accounts for these effects, the winner-take-all system turns out to be preferable in a broad set of circumstances, especially in highly innovative industries. (JEL: K11, L1, O34) (c) 2010 by the European Economic Association.

Suggested Citation

  • Vincenzo Denicolo & Luigi A. Franzoni, 2010. "On the Winner-Take-All Principle in Innovation Races," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1133-1158, September.
    • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:5:p:1133-1158
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    Cited by:

    1. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8gjo2i2i is not listed on IDEAS
    2. Crass, Dirk & Garcia Valero, Francisco & Pitton, Francesco & Rammer, Christian, 2016. "Protecting innovation through patents and trade secrets: Determinants and performance impacts for firms with a single innovation," ZEW Discussion Papers 16-061, ZEW - Leibniz Centre for European Economic Research.
    3. Billette de Villemeur, Etienne & Ruble, Richard & Versaevel, Bruno, 2019. "Dynamic competition and intellectual property rights in a model of product development," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 270-296.
    4. Beauchêne, D., 2019. "Is ambiguity aversion bad for innovation?," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1154-1176.
    5. Blasch, Julia & Boogen, Nina & Filippini, Massimo & Kumar, Nilkanth, 2017. "Explaining electricity demand and the role of energy and investment literacy on end-use efficiency of Swiss households," Energy Economics, Elsevier, vol. 68(S1), pages 89-102.
    6. Hans Gersbach & Marie-Catherine Riekhof, 2022. "Technology Treaties And Climate Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 1-42, May.
    7. Han, The Anh & Lenaerts, Tom & Santos, Francisco C. & Pereira, Luís Moniz, 2022. "Voluntary safety commitments provide an escape from over-regulation in AI development," Technology in Society, Elsevier, vol. 68(C).
    8. Emeric Henry, 2010. "Runner‐up Patents: Is Monopoly Inevitable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 417-440, June.
    9. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8gjo2i2i is not listed on IDEAS
    10. Emeric Henry, 2010. "Promising the right prize," Working Papers hal-00972957, HAL.
    11. Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.
    12. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8gjo2i2i is not listed on IDEAS
    13. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09iatrhegan is not listed on IDEAS
    14. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 497-517, March.
    15. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8gjo2i2i is not listed on IDEAS
    16. Franzoni, Luigi Alberto & Kaushik, Arun Kumar, 2016. "The optimal scope of trade secrets law," International Review of Law and Economics, Elsevier, vol. 45(C), pages 45-53.
    17. Zhang, Tianle, 2012. "Patenting in the shadow of independent discoveries by rivals," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 41-49.
    18. Emeric Henry, 2010. "Runner‐up Patents: Is Monopoly Inevitable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 417-440, June.
    19. Richard Gilbert, 2011. "A World without Intellectual Property? A Review of Michele Boldrin and David Levine's Against Intellectual Monopoly," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 421-432, June.
    20. Emeric Henry, 2010. "Promising the right prize," Working Papers hal-00972957, HAL.
    21. Emanuela Randon & Peter Simmons, 2017. "A top dog tale with preference complementarities," Journal of Economics, Springer, vol. 120(1), pages 47-63, January.
    22. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09iatrhegan is not listed on IDEAS

    More about this item

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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