Endogenous Appropriability

Joshua Gans and Scott Stern

No 23138, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The appropriability of innovation depends not only on the instruments available to an innovator to protect private returns, but how those instruments interact with each other as part of the firm’s entrepreneurial strategy. We consider the interplay between two appropriability mechanisms available to start-up innovators: control, whereby the innovator earns rents from their establishment of formal intellectual property rights, versus execution, whereby innovators earn returns through a first-mover advantage that yields dynamic benefits allowing the firm to “get ahead, stay ahead.” While most prior work has taken these instruments to be independent, we establish that these two alternative appropriability instruments are substitutes on the margin. For example, if the learning advantage from execution is sufficiently high, an entrepreneur might choose not to invest in a patent, even if intellectual property protection is costless. Moreover, the endogenous choice between control and execution is interdependent with other strategic choices of start-up innovators, such as the choice to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” version of their innovation versus delay commercialization until a product is available with a higher level of technical functionality and reliability.

JEL-codes: O31 O34 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-com, nep-ent, nep-ino and nep-ipr
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Joshua S. Gans & Scott Stern, 2017. "Endogenous Appropriability," American Economic Review, American Economic Association, vol. 107(5), pages 317-321, May.

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