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Invention under uncertainty and the threat of ex post entry

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Author Info
Miller, David A.

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Abstract

This article proposes a theoretical framework for studying the invention of new products when demand is uncertain. In this framework, under general conditions, the threat of ex post entry by a competitor can deter invention ex ante. Asymmetric market power in the ex post market exacerbates the problem. The implications of these general results are examined in a series of examples that represent important markets in the computer industry. The first is a model that shows how an operating system monopolist, by its mere presence, can deter the invention of complements, to its own detriment as well as that of society. The implications of policies such as patent protection, price regulation, and mandatory divestiture are considered. Three additional examples consider the ability of a monopolist in one market to commit to bundling an unrelated product, a pair of horizontally differentiated firms that can add a new feature to their products, and a platform leader that can be challenged in its base market by the supplier of a complementary product.

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File URL: http://www.sciencedirect.com/science/article/B6V64-4NT84VB-3/1/4da04acf97630b9ed62364a3f6c4d442
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Publisher Info
Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 3 (April)
Pages: 387-412
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Handle: RePEc:eee:eecrev:v:52:y:2008:i:3:p:387-412

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  4. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August. [Downloadable!] (restricted)
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  5. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March. [Downloadable!] (restricted)
  6. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February. [Downloadable!] (restricted)
  7. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring. [Downloadable!] (restricted)
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  8. d' Aspremont, Claude & Bhattacharya, Sudipto & Gerard-Varet, Louis-Andre, 2000. "Bargaining and Sharing Innovative Knowledge," Review of Economic Studies, Blackwell Publishing, vol. 67(2), pages 255-71, April.
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  10. Robert Gertner & Robert Gibbons & David Scharfstein, 1988. "Simultaneous Signalling to the Capital and Product Markets," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 173-190, Summer. [Downloadable!] (restricted)
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  11. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
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  13. Benveniste, Lawrence M. & Busaba, Walid Y. & Wilhelm, William Jr., 2002. "Information Externalities and the Role of Underwriters in Primary Equity Markets," Journal of Financial Intermediation, Elsevier, vol. 11(1), pages 61-86, January. [Downloadable!] (restricted)
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    Other versions:
  18. Vincenzo Denicolò, 2000. "Two-Stage Patent Races and Patent Policy," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 450-487, Autumn.
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  21. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science. [Downloadable!]
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    Other versions:
  23. Bresnahan, Timothy F & Greenstein, Shane, 1999. "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 47(1), pages 1-40, March. [Downloadable!] (restricted)
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  24. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring. [Downloadable!] (restricted)
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  28. Stefanadis, Christodoulos, 1997. "Downstream Vertical Foreclosure and Upstream Innovation," Journal of Industrial Economics, Blackwell Publishing, vol. 45(4), pages 445-56, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luis Cabral & Ben Polak, 2007. "Dominant Firms, Imitation, and Incentives to Innovate," Working Papers 07-6, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
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