R&D Portfolio and Market Structure

Illoong Kwon ()

Economic Journal, 2010, vol. 120, issue 543, 313-323

Abstract: This article analyses how firms allocate their resources when they compete for multiple patents in heterogeneous research projects simultaneously. A simple model shows that firms' resource allocation is biased away from risky and basic research, even when imitation is not possible and firms are fully rational. Therefore a market may lack major innovations despite large aggregate research expenditure and strong patent protection. This article also shows that as a market becomes more competitive, firms invest relatively less in basic research but more in risky research. These results provide a novel explanation for an ambiguous empirical relationship between innovation and market concentration. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2010
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