Technology Competition, Cumurative Innovation, and Technological Development Scheme

Masahito Ambashi

No 1065, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper investigates which technological development scheme is desirable in technology competition and cumulative innovation with signiï¬ cant uncertainty included in the follow-on innovation. Technology competition is likely to generate a socially overincentive for innovation especially when consumer surplus is negligible. This paper ï¬ rst ï¬ nds that grant-back clause combined with an appropriate distribution of expected proï¬ ts mitigates the socially overinvestments in both the initial and follow-on technologies, and therefore, improves social welfare. In particular, this paper shows that if a government authority can specify a particular distribution of expected proï¬ ts between the ï¬ rms, the socially optimal investment in the initial technology can be realized. On the other hand, assuming signiï¬ cantly positive consumer surplus instead, this paper reveals that competition in the follow-on technology creates higher social welfare as consumer surplus is large.

Keywords: technology competition; cumulative innovation; initial and follow-on technologies; technological development scheme; grant-back clause (search for similar items in EconPapers)
JEL-codes: L24 O32 O34 (search for similar items in EconPapers)
Pages: 26pages
Date: 2021-09
New Economics Papers: this item is included in nep-com, nep-cse, nep-isf and nep-tid
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