Selection Biases in Complementary R&D Projects
Jay Pil Choi
Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Heiko A. Gerlach
University of Queensland - School of Economics
April 29, 2011
CESifo Working Paper Series No. 3425
This paper analyzes selection biases in the project choice of complementary technologies that are used in combination to produce a final product. In the presence of complementary technologies, patents allow innovating firms to hold up rivals who succeed in developing other system components. This hold-up potential induces firms to preemptively claim stakes on component property rights and excessively cluster their R&D efforts on a relatively easier technology. This selection bias is persistent and robust to several model extensions. Implications for the optimal design of intellectual property rights are discussed. We also analyze selection biases that arise when firms differ in research capabilities.
Number of Pages in PDF File: 45
Keywords: R&D project choice, preemptive duplication, complementary innovations
JEL Classification: D430, L130, O300
Date posted: May 5, 2011
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