R&D appropriability and market structure in a preemption model

Adriana Breccia
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Adriana Breccia: Risk Control Limited, London

No 1902, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: Numerous studies have examined how market structure affects appropriability of R&D returns and, in turn, R&D investment and innovation speed. Less effort has been spent on the opposite relationship which is instead our focus. In a continuous time model, two firms compete in R&D, with the leading patent affecting the probability of success of a second patent (competing in the same product market); the size and the direction of this effect depends on the level of appropriability, which, unlike previous research, connects competition in R&D and competition in the product market. We find that low appropriability delays R&D investments and thus discovery, with the (future) benefit of a more competitive product market. Secondly, we show that the relation between concentration in R&D and concentration in product markets can be positive or negative depending on the probability of success of an innovation and its level of appropriability. Also, we find that an increase in the probability of success of innovation does not necessarily speed up investment in R&D.

Keywords: real options; intellectual property; R&D; geometric Brownian motion; Stackelberg games (search for similar items in EconPapers)
JEL-codes: C7 D8 K4 O3 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-cfn, nep-com, nep-gth, nep-ipr and nep-law
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https://eprints.bbk.ac.uk/id/eprint/26843/1/26843.pdf First version, 2019

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