Profitable Innovation Without Patent Protection: The Case of Derivatives

Helios Herrera () and Enrique Schroth ()

No 302, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: Investment banks develop their own innovative derivatives to underwrite corporate issues but they cannot preclude other banks from imitating them. However, during the process of underwriting an innovator can learn more than its imitators about the potential clients. Moving first puts him ahead in the learning process. Thus, he develops an information advantage and he can capture rents in equilibrium despite being imitated. In this context, innovation can arise without patent protection. Consistently with this hypothesis, case studies of recent innovations in derivatives reveal that innovators keep private some details of their deals to preserve the asymmetry of information.

Keywords: Financial innovation; first-mover advantages; asymmetric information; learning-by-doing (search for similar items in EconPapers)
JEL-codes: G24 L12 L89 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2003-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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http://ftp.itam.mx/pub/academico/inves/herrera/03-02.pdf First version, 2003 (application/pdf)

Related works:
Working Paper: Profitable Innovation Without Patent Protection: The Case of Derivatives (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:0302

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