Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R & D Incentivest

26 Pages Posted: 13 Oct 2008

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Ben Polak

affiliation not provided to SSRN

Date Written: July 2004

Abstract

We provide a simple framework to analyze the effect of rm dominance on incentives for R&D. An increase in firm dominance, whichwe measure by a premium in consumer valuation, increases the dominant firm's incentives and decreases the rival firm's incentives for R&D. These changes inuence the probability of innovation through two effects: changes in total R&D effort and changes in how this total is distributed between the two firms.For a given level of total research effort, the shift from the rival firm to the dominant rm is a good thing as it decreases the likelihood of duplicate innovation (we call this the duplication effect). However, theshift in research effort is not one-to-one. The dominant firm's benefit from increased dominance is more inframarginal than marginal when compared to the rival firm's disincentive. As a result, total researcheffort decreases when rm dominance increases (we call this the total effort effect).We show the total effort effect dominates the duplication effect when intellectual property protection is weak, and the opposite when property rights are strong. That is, rm dominance is good for innovation when(but only when) property rights are strong. We also examine consumer and social surplus.

Suggested Citation

Cabral, Luis M. B. and Polak, Ben, Does Microsoft Stifle Innovation? Dominant Firms, Imitation, and R & D Incentivest (July 2004). NYU Working Paper No. EC-04-16. Available at SSRN: https://ssrn.com/abstract=1282559

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ben Polak

affiliation not provided to SSRN

No Address Available

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
45
Abstract Views
533
PlumX Metrics