R&D Portfolio and Market Structure

11 Pages Posted: 10 Feb 2010

Date Written: 2009-06-09

Abstract

This article analyses how firms allocate their resources when they compete for multiple patents in heterogeneous research projects simultaneously. A simple model shows that firms’ resource allocation is biased away from risky and basic research, even when imitation is not possible and firms are fully rational. Therefore a market may lack major innovations despite large aggregate research expenditure and strong patent protection. This article also shows that as a market becomes more competitive, firms invest relatively less in basic research but more in risky research. These results provide a novel explanation for an ambiguous empirical relationship between innovation and market concentration.

Suggested Citation

Kwon, Illoong, R&D Portfolio and Market Structure (2009-06-09). The Economic Journal, Vol. 120, Issue 543, pp. 313-323, March 2010. Available at SSRN: https://ssrn.com/abstract=1550478 or http://dx.doi.org/10.1111/j.1468-0297.2009.02294.x

Illoong Kwon (Contact Author)

Seoul National University ( email )

Graduate School of Public Administration
599 Gwanak-ro
Gwanak-gu, Seoul 151-742
Korea, Republic of (South Korea)
82-2-880-8551 (Phone)
82-2-877-2411 (Fax)

HOME PAGE: http://www.albany.edu/~ik325357/

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