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Patentability, R&D Direction, And Cumulative Innovation

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  • Yongmin Chen
  • Shiyuan Pan
  • Tianle Zhang

Abstract

We present a model where firms conduct R&D in both a safe and a risky direction. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent, which decreases the static incentive for new entrants to conduct risky R&D but can increase their dynamic incentive. These, together with a strategic substitution and a market structure effect, result in an inverted‐U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. R&D is biased toward (against) the risky direction under lower (higher) standards.

Suggested Citation

  • Yongmin Chen & Shiyuan Pan & Tianle Zhang, 2018. "Patentability, R&D Direction, And Cumulative Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1969-1993, November.
    • Handle: RePEc:wly:iecrev:v:59:y:2018:i:4:p:1969-1993
    DOI: 10.1111/iere.12326
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    Cited by:

    1. Chen, Yongmin, 2020. "Improving market performance in the digital economy," China Economic Review, Elsevier, vol. 62(C).
    2. José Luis Moraga‐González & Evgenia Motchenkova & Saish Nevrekar, 2022. "Mergers and innovation portfolios," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 641-677, December.
    3. Stefano Comino & Fabio M. Manenti, 2022. "Patent portfolios and firms’ technological choices," Journal of Economics, Springer, vol. 137(2), pages 97-120, October.
    4. Choi, Jay Pil & Jeon, Doh-Shin, 2020. "Platform Design Biases in Two-Sided Markets," TSE Working Papers 20-1143, Toulouse School of Economics (TSE).
    5. Fabio M. Manenti & Luca Sandrini, 2023. "Patents with Simultaneous Innovations: The Patentability Requirements and the Direction of Innovation," Discussion Papers 2303, Budapest University of Technology and Economics, Quantitative Social and Management Sciences, revised Aug 2023.
    6. Kangoh Lee, 2020. "The value and direction of innovation," Journal of Economics, Springer, vol. 130(2), pages 133-156, July.
    7. Haiwei Jiang & Shiyuan Pan & Xiaomeng Ren, 2020. "Does Administrative Approval Impede Low-Quality Innovation? Evidence from Chinese Manufacturing Firms," Sustainability, MDPI, vol. 12(5), pages 1-22, March.
    8. Jay Pil Choi & Doh-Shin Jeon, 2020. "Two-Sided Platforms and Biases in Technology Adoption," CESifo Working Paper Series 8559, CESifo.
    9. Marshall, Guillermo & Parra, Álvaro, 2019. "Innovation and competition: The role of the product market," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 221-247.
    10. Angus C. Chu, 2022. "Patent policy and economic growth: A survey," Manchester School, University of Manchester, vol. 90(2), pages 237-254, March.
    11. Esmée Dijk & José Luis Moraga-González & Evgenia Motchenkova, 2023. "Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios," Tinbergen Institute Discussion Papers 23-047/VII, Tinbergen Institute.
    12. Bryan, Kevin A. & Lemus, Jorge, 2017. "The direction of innovation," Journal of Economic Theory, Elsevier, vol. 172(C), pages 247-272.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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