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Selection Biases in Complementary R&D Projects

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  • Jay Pil Choi
  • Heiko Gerlach

Abstract

This paper analyzes selection biases in the project choice of complementary technologies that are used in combination to produce a final product. In the presence of complementary technologies, patents allow innovating firms to hold up rivals who succeed in developing other system components. This hold-up potential induces firms to preemptively claim stakes on component property rights and excessively cluster their R&D efforts on a relatively easier technology. This selection bias is persistent and robust to several model extensions. Implications for the optimal design of intellectual property rights are discussed. We also analyze selection biases that arise when firms differ in research capabilities.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3425.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3425

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Related research

Keywords: R&D project choice; preemptive duplication; complementary innovations;

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References

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  1. James Cardon & Dan Sasaki, 1998. "Preemptive Search and R&D Clustering," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 324-338, Summer.
  2. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 40(4), pages 611-635.
  3. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(3), pages 395-410, August.
  4. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1145-50, September.
  5. Pankaj Tandon, 1983. "Rivalry and the Excessive Allocation of Resources to Research," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(1), pages 152-165, Spring.
  6. Sudipto Bhattacharya & Dilip Mookherjee, 1986. "Portfolio Choice in Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 594-605, Winter.
  7. Heiko A. Gerlach & Thomas Rønde & Konrad Stahl, 2005. "PROJECT CHOICE AND RISK IN R&D -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 53-81, 03.
  8. Shapiro, Carl, 2005. "Prior User Rights," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt2dc6p04t, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  9. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(2), pages 429-36, March.
  10. Fershtman, C. & Kamien, M.I., 1991. "Cross Licensing of Complementary Technologies," Papers, Tel Aviv 1-91, Tel Aviv.
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Cited by:
  1. Matros, Alexander & Smirnov, Vladimir, 2011. "Treasure game," Working Papers, University of Sydney, School of Economics 2011-10, University of Sydney, School of Economics.
  2. Gallini, Nancy, 2010. "Private Agreements for Coordinating Patent Rights: The Case of Patent Pools," Economics working papers, Vancouver School of Economics nancy_gallini-2010-34, Vancouver School of Economics, revised 17 Nov 2010.

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