Profiting from Innovation Flashcards
Conditions for profitable innovation
Beneficiaries of innovation
- customers: benefit when their valuation of the new products exceeds its price
- innovator: benefits by selling the innovative product
- imitators: benefit by marketing the imitation while saving on R&D cost
- suppliers and complementors benefit by selling larger quantities
Customers benefit
suppliers benefits
Conditions for profitable innovation
Appropriability regime
▪ The “appropriability conditions” denote all factors that influence the possibility
of profitable imitation of an innovation.
▪ Among these factors are:
– availability and strength of legal protection
– viability of secrecy
– characteristics of underlying technology
▪ Further factors, different in nature (in how far “different”?):
– network effects
– switching costs
– scale effects
– ease of market entry
Life cycle phases and innovator’s success
AR and CA decide who profits
Complementary Assets
specialized, co-specialized, generic CAs
CA contract/integrate
Co-operate or compete
- Go through the markets for products
– Compete with existing products
– Complement existing products - Go through the markets for ideas
– Sell ideas
– Sell your company
– Make alliances
Benefits of cooperation
▪ Shares the potential benefits with others – less competition for
Schumpeterian rents
▪ Allows new firms to build on other firms existing competencies
▪ Avoids costs of catching-up
▪ Many firms are skilled users of new firms in their innovation strategies – GE
acquires a new firm every day
Risks and costs of co-operation
▪ Paradox of disclosure – willingness to pay depends on their knowledge of the
idea, yet the knowledge of the idea implies that potential buyers need not pay
for it
▪ Without IPR, buyers can claim they knew it already
▪ Bargaining power of new firms – are their threats credible?
▪ Finding partners and negotiating with them can be expensive and time
consuming
