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Invention under uncertainty and the threat of ex post entry

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  • David A. Miller

    (UCSD)

Abstract

This paper 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://128.118.178.162/eps/io/papers/0510/0510001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0510001.

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Length: 55 pages
Date of creation: 06 Oct 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0510001

Note: Type of Document - pdf; pages: 55
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Web page: http://128.118.178.162

Related research

Keywords: Invention; innovation; demand uncertainty; ex post entry; bundling; Intel; Microsoft; Netscape;

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References

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Cited by:
  1. Luis Cabral & Ben Polak, 2012. "Standing on the Shoulders of Babies: Dominant Firms and Incentives to Innovate," Working Papers 12-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Niedermayer, Andras, 2013. "On platforms, incomplete contracts, and open source software," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 714-722.

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