Endogenous Appropriability

13 Pages Posted: 14 Jan 2017

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2017

Abstract

The appropriability of innovation depends not only on the instruments available to an innovator to protect private returns, but how those instruments interact with each other as part of the firm’s entrepreneurial strategy. We consider the interplay between two appropriability mechanisms available to start-up innovators: control, whereby the innovator earns rents from their establishment of formal intellectual property rights, versus execution, whereby innovators earn returns through a first-mover advantage that yields dynamic benefits allowing the firm to “get ahead, stay ahead.” While most prior work has taken these instruments to be independent, we establish that these two alternative appropriability instruments are substitutes on the margin. For example, if the learning advantage from execution is sufficiently high, an entrepreneur might choose not to invest in a patent, even if intellectual property protection is costless. Moreover, the endogenous choice between control and execution is interdependent with other strategic choices of start-up innovators, such as the choice to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” version of their innovation versus delay commercialization until a product is available with a higher level of technical functionality and reliability.

Keywords: Control, Execution, Appropriability, Intellectual Property, Entrepreneurial Strategy, Minimum Viable Product

JEL Classification: O31, O34

Suggested Citation

Gans, Joshua S. and Stern, Scott, Endogenous Appropriability (January 12, 2017). Rotman School of Management Working Paper No. 2898472. Available at SSRN: https://ssrn.com/abstract=2898472 or http://dx.doi.org/10.2139/ssrn.2898472

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

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Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Cambridge, MA 02142
United States
617-253-3053 (Phone)
617-253-2660 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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