Strategic Spillovers and Incentives for Research and Development

Dietmar Harhoff ()

Management Science, 1996, vol. 42, issue 6, 907-925

Abstract: This paper develops a model in which a monopolist supplier can contribute to downstream product improvements by creating knowledge spillovers which downstream firms use as a substitute for their own R&D efforts. Although a market for R&D information does not exist, the supplier may appropriate an indirect return on R&D for two reasons. Sufficiently high levels of spillover information lead to greater downstream product quality, and spillover information reduces the equilibrium sunk cost of R&D for downstream firms and thus facilitates entry. Both effects cause an expansion of downstream output and enhance the demand for the supplier's intermediate good. Given sufficiently strong incentives for supplier R&D, the locus of R&D shifts partially from the downstream to the upstream industry. R&D expenditures, technological opportunities, and downstream industry structure are determined endogenously. Weak appropriability conditions in the downstream industry enhance innovation incentives in the supply sector.

Keywords: innovation; knowledge spillovers; research and development (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (49)

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