Who is Afraid of Pirates? An Experiment on the Deterrence of Innovation by Imitation

41 Pages Posted: 25 May 2013 Last revised: 3 Dec 2013

See all articles by Christoph Engel

Christoph Engel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students; Universität Osnabrück - Faculty of Law

Marco Kleine

Max Planck Institute for Innovation and Competition

Date Written: November 2013

Abstract

In the policy debate, intellectual property is often justified by what seems to be a straightforward argument: if innovators are not protected against others appropriating their ideas, incentives for innovation are suboptimally low. Now in most industries for most potential users, appropriating a foreign innovation is itself an investment decision fraught with cost and risk. Nonetheless standard theory predicts too little innovation. Arguably the problem is exacerbated by innovators’ sensitivity to fairness; imitators get a free lunch, after all. We model the situation as a game and test it in the lab. We find more appropriation but also more innovation than predicted by standard theory. In the lab, the prospect of giving imitators a free lunch does not have a chilling effect on innovation. This even holds if innovation automatically spills over to an outsider, and if successful imitation reduces the innovator’s profit. Post-experimental tests and the analysis of experiences in the repeated game demonstrate that participants are sensitive to the fairness problem. But this concern is not strong enough to outweigh the robust propensity to invest even more into innovation than predicted by standard theory. The data suggest that this behavior results from the intention not to be outperformed by one’s peers.

Keywords: Innovation, imitation, appropriation, patent, fairness of desert

JEL Classification: H41, O31, D63, K11, C91, D62, H23, L17, D22

Suggested Citation

Engel, Christoph and Kleine, Marco, Who is Afraid of Pirates? An Experiment on the Deterrence of Innovation by Imitation (November 2013). MPI Collective Goods Preprint, No. 2013/7, Available at SSRN: https://ssrn.com/abstract=2269635 or http://dx.doi.org/10.2139/ssrn.2269635

Christoph Engel (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+049 228 914160 (Phone)
+049 228 9141655 (Fax)

HOME PAGE: http://www.coll.mpg.de/engel.html

University of Bonn - Faculty of Law & Economics

Postfach 2220
D-53012 Bonn
Germany

Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students ( email )

Burgemeester Oudlaan 50
PO Box 1738
Rotterdam
Netherlands

Universität Osnabrück - Faculty of Law

Osnabruck, D-49069
Germany

Marco Kleine

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

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