Download This PaperIncentives to Invent When Innovators Make "New Combinations" of Inventions
37 Pages Posted: 1 Mar 2019 Last revised: 15 Mar 2022
Date Written: March 6, 2022
Abstract
Innovation increasingly involves making "new combinations" of inventions. Firms assemble inventions to form complex innovations such as smartphones or connected cars. The analysis finds that bargaining over intellectual property (IP) license contracts generates efficient technology adoption and production decisions. The analysis shows that downstream competition among producers increases (decreases) incentives to invent as in Arrow (Schumpeter) depending on elasticities of demand and supply. The analysis also shows that upstream competition among inventors increases or decreases incentives to invent depending on whether incremental returns to invention are less than or greater than average returns to invention. When there are many inventors, incentives to invent are greater with a downstream monopolist than with downstream competition, contrary to Arrow's result. When there is a bundling monopolist inventor, incentives to invent are lower with a downstream monopolist than with downstream competition, which conforms with Arrow's result.
Keywords: Technology; Technological Change, Invention, Innovation, Research and Development, Standard Essential Patents, Licensing, Royalties
JEL Classification: O3, O31, O33, O34
Suggested Citation: Suggested Citation