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R&D appropriability and market structure in a preemption model

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  • Adriana Breccia

    (Risk Control Limited, London)

Abstract

Numerous studies have examined how market structure affects appropriability of R&D returns and, in turn, R&D investment and innovation speed. Less effort has been spent on the opposite relationship which is instead our focus. In a continuous time model, two firms compete in R&D, with the leading patent affecting the probability of success of a second patent (competing in the same product market); the size and the direction of this effect depends on the level of appropriability, which, unlike previous research, connects competition in R&D and competition in the product market. We find that low appropriability delays R&D investments and thus discovery, with the (future) benefit of a more competitive product market. Secondly, we show that the relation between concentration in R&D and concentration in product markets can be positive or negative depending on the probability of success of an innovation and its level of appropriability. Also, we find that an increase in the probability of success of innovation does not necessarily speed up investment in R&D.

Suggested Citation

  • Adriana Breccia, 2019. "R&D appropriability and market structure in a preemption model," Birkbeck Working Papers in Economics and Finance 1902, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1902
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    File URL: https://eprints.bbk.ac.uk/id/eprint/26843/1/26843.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    real options; intellectual property; R&D; geometric Brownian motion; Stackelberg games;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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