Strategic Concealment in Innovation Races

Firms racing to innovate often make interim breakthroughs that speed up, but are not necessary for, the final innovation. When such a breakthrough is privately acquired, a firm can disclose it by filing a patent, or conceal it. This paper studies how this trade off is shaped by the race structure and the intellectual property system. We develop a dynamic model where firms allocate resources between developing with an existing technology and researching a faster one. We show that firms strategically conceal their breakthroughs when the prize for winning is large and the prior-use defense is strong, impeding knowledge spillovers and slowing the pace of innovation.