Does Microsoft Stifle Innovation? Dominant Firms, Imitation and R&D Incentives
AbstractWe provide a simple framework to analyse the effect of firm dominance on incentives for R&D. An increase in firm dominance, which we measure by a premium in consumer valuation, increases the dominant firm's incentives and decreases the rival firm's incentives for R&D. These changes influence the probability of innovation through two effects: changes in total R&D effort and changes in how this total is distributed between the two firms. For a given level of total research effort, the shift from the rival firm to the dominant firm is a good thing as it decreases the likelihood of duplicate innovation (we call this the duplication effect). The shift in research effort is not one-to-one, however. The dominant firm's benefit from increased dominance is more inframarginal than marginal when compared to the rival firm's disincentive. As a result, total research effort decreases when firm dominance increases (we call this the total effort effect). We show the total effort effect dominates the duplication effect when intellectual property protection is weak, and the opposite when property rights are strong. That is, firm dominance is good for innovation when (but only when) property rights are strong. We also examine consumer and social surplus.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4577.
Date of creation: Aug 2004
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Luis Cabral & Ben Polak, 2004. "Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R & D Incentives," Working Papers 04-16, New York University, Leonard N. Stern School of Business, Department of Economics.
- Luís Cabral & Ben Polak, 2004. "Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R&D Incentives," Working Papers 06, Portuguese Competition Authority.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-COM-2005-02-13 (Industrial Competition)
- NEP-IND-2005-02-13 (Industrial Organization)
- NEP-INO-2005-02-13 (Innovation)
- NEP-MIC-2005-02-13 (Microeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Färnstrand Damsgaard, Erika, 2009. "Patent Scope and Technology Choice," Working Paper Series 792, Research Institute of Industrial Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.