Appropriability and Incentives with Complementary Innovations

This paper analyzes the effects on incentives to invest in the development of complementary innovations within research and development (R&D) collaborations of two alternative appropriability regimes: an “openness regime” whereby parties make an ex ante commitment to reciprocal access to each other's R&D outputs and an “exclusion regime” whereby no such commitment is made. We consider a model with efficient bargaining ex ante in which firms do not compete in the final market. Assuming that the complementary innovations constitute a common input and that agents make complementary investments in its private exploitation, we find that, when complementarities are sufficiently strong, a commitment to openness may provide greater incentives than an exclusion regime. The theoretical framework may be applied to interpret Open Source Software licenses, intellectual property rights licensing arrangements within research joint ventures and royalty stacking issues. From a public policy standpoint, the paper allows to identify conditions under which the openness regime may be an appropriate choice to elicit further development of publicly funded technologies.