Some Like it Free: Innovators' Strategic Use of Disclosure to Slow Down Competition

Abstract:     
Why do some innovators freely reveal their intellectual property? This empirical puzzle has been a focal point of debate in the R&D literature. We show that innovators may share proprietary technology with rivals for free - even if it does not directly benefit them - to slow down competition. By disclosing IP, innovators indirectly induce rivals to wait and imitate instead of concurrently investing in innovation, which alleviates competitive pressure. In contrast with the classical strategy view, our paper also shows that imitators may not always benefit from interfirm knowledge spillovers. Specifically, imitators may want to limit the knowhow that they can freely appropriate from innovators. Otherwise, innovators have fewer incentives to quickly develop new technologies, which, ultimately, reduces the pace and profits of imitation. Our theoretical model contributes to the literature on competitive dynamics of R&D. The main propositions establish testable relationships between strategic variables that are empirically observable.

Number of Pages in PDF File: 45

Keywords: R&D and technology, innovation dynamics, timing games, time compression diseconomies, firm spillovers, capabilities

JEL Classification: D21, M20, O30, O31, O32, O34

Accepted Paper Series