Exploitative Innovation

Paul Heidhues, Botond K?szegi and Takeshi Murooka
Authors registered in the RePEc Author Service: Botond Koszegi

American Economic Journal: Microeconomics, 2016, vol. 8, issue 1, 1-23

Abstract: We analyze innovation incentives when firms can invest either in increasing the product's value (value-increasing innovation) or in increasing the hidden prices they collect from naive consumers (exploitative innovation). We show that if firms cannot return all profits from hidden prices by lowering transparent prices, innovation incentives are often stronger for exploitative than for value-increasing innovations, and are strong even for non-appropriable innovations. These results help explain why firms in the financial industry (e.g., credit-card issuers) have been willing to make innovations others could easily copy, and why these innovations often seem to have included exploitative features. (JEL D21, G21, L11, L25, O31)

JEL-codes: D21 G21 L11 L25 O31 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mic.20140138
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Citations: View citations in EconPapers (27)

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