Selection Biases in Complementary R&D Projects

45 Pages Posted: 5 May 2011  

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

Date Written: April 29, 2011

Abstract

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.

Keywords: R&D project choice, preemptive duplication, complementary innovations

JEL Classification: D430, L130, O300

Suggested Citation

Choi, Jay Pil and Gerlach, Heiko A., Selection Biases in Complementary R&D Projects (April 29, 2011). CESifo Working Paper Series No. 3425. Available at SSRN: https://ssrn.com/abstract=1831090

Jay Pil Choi (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Heiko A. Gerlach

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

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