IDEAS home Printed from https://ideas.repec.org/p/pca/wpaper/06.html

Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R&D Incentives

Author

Listed:
  • Luís Cabral

    (New York University and CEPR)

  • Ben Polak

    (Yale University)

Abstract

We provide a simple framework to analyze 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). However, the shift in research effort is not one-to-one. The dominant firm's beneffit 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.

Suggested Citation

  • Luís Cabral & Ben Polak, 2004. "Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R&D Incentives," Working Papers 06, Portuguese Competition Authority.
    • Handle: RePEc:pca:wpaper:06
    as

    Download full text from publisher

    File URL: http://www.concorrencia.pt/download/WP06_CabralPolak_july13.pdf
    File Function: First version, 2004
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Färnstrand Damsgaard, Erika, 2009. "Patent Scope and Technology Choice," Working Paper Series 792, Research Institute of Industrial Economics.
    3. Olga Slivko & Bernd Theilen, 2014. "Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice," Journal of Economics, Springer, vol. 112(3), pages 253-282, July.

    More about this item

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pca:wpaper:06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Duarte Brito (email available below). General contact details of provider: https://edirc.repec.org/data/acogvpt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.