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On the Winner-Take-All Principle in Innovation Races

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  • Vincenzo Denicolo
  • Luigi A. Franzoni

Abstract

What is the optimal allocation of prizes in an innovation race? Should the winner take all, or is it preferable that the original inventor shares the market with subsequent independent duplicators? Some recent papers in law and economics have argued that the latter, more permissive solution is socially preferable under mild conditions. We re-examine that issue, arguing that a permissive regime may turn the innovation race into a waiting game, reducing the power of incentives, and may invite socially wasteful duplicative R&D expenditures. In a model that accounts for these effects, the winner-take-all system turns out to be preferable in a broad set of circumstances, especially in highly innovative industries. (JEL: K11, L1, O34) (c) 2010 by the European Economic Association.

Suggested Citation

  • Vincenzo Denicolo & Luigi A. Franzoni, 2010. "On the Winner-Take-All Principle in Innovation Races," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1133-1158, September.
  • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:5:p:1133-1158
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    Citations

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    Cited by:

    1. Emeric Henry, 2010. "Runner-up Patents: Is Monopoly Inevitable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 417-440, June.
    2. Crass, Dirk & Garcia Valero, Francisco & Pitton, Francesco & Rammer, Christian, 2016. "Protecting innovation through patents and trade secrets: Determinants and performance impacts for firms with a single innovation," ZEW Discussion Papers 16-061, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 497-517, March.
    4. Franzoni, Luigi Alberto & Kaushik, Arun Kumar, 2016. "The optimal scope of trade secrets law," International Review of Law and Economics, Elsevier, vol. 45(C), pages 45-53.
    5. Zhang, Tianle, 2012. "Patenting in the shadow of independent discoveries by rivals," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 41-49.
    6. Hans Gersbach & Marie-Catherine Riekhof, 2017. "Technology Treaties and Climate Change," CER-ETH Economics working paper series 17/268, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Richard Gilbert, 2011. "A World without Intellectual Property? A Review of Michele Boldrin and David Levine's Against Intellectual Monopoly," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 421-432, June.
    8. Julia Blasch & Nina Boogen & Nilkanth Kumar & Massimo Filippini, 2017. "The role of energy and investment literacy for residential electricity demand and end-use efficiency," CER-ETH Economics working paper series 17/269, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Emeric Henry, 2010. "Promising the right prize," Working Papers hal-00972957, HAL.
    10. Emanuela Randon & Peter Simmons, 2017. "A top dog tale with preference complementarities," Journal of Economics, Springer, vol. 120(1), pages 47-63, January.
    11. Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.

    More about this item

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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