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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.

Suggested Citation

  • David A. Miller, 2005. "Invention under uncertainty and the threat of ex post entry," Industrial Organization 0510001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpio:0510001
    Note: Type of Document - pdf; pages: 55
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Wen Wen & Feng Zhu, 2016. "How Do Complementors Respond to the Threat of Platform Owner Entry? Evidence from the Mobile App Market," Working Papers 16-10, NET Institute.
    2. Peng Huang & Marco Ceccagnoli & Chris Forman & D. J. Wu, 2013. "Appropriability Mechanisms and the Platform Partnership Decision: Evidence from Enterprise Software," Management Science, INFORMS, vol. 59(1), pages 102-121, July.
    3. 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.
    4. Niedermayer, Andras, 2013. "On platforms, incomplete contracts, and open source software," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 714-722.

    More about this item

    Keywords

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

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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