Invention Under Uncertainty and the Threat of Ex Post Entry

30 Pages Posted: 19 Aug 2002

See all articles by David A. Miller

David A. Miller

University of California, San Diego - Department of Economics

Date Written: August 24, 2006

Abstract

This paper proposes a theoretical framework for studying the invention of new products when demand is uncertain. In this framework, under general conditions, the threat of ex post entry by a competitor can deter invention ex ante. Asymmetric market power in the ex post market exacerbates the problem. The implications of these general results are examined in a series of examples that represent important markets in the computer industry. The first is a model that shows how an operating system monopolist, by its mere presence, can deter the invention of complements, to its own detriment as well as that of society. The implications of policies such as patent protection, price regulation, and mandatory divestiture are considered. Three additional examples consider the ability of a monopolist in one market to commit to bundling an unrelated product, a pair of horizontally differentiated firms that can add a new feature to their products, and a platform leader that can be challenged in its base market by the supplier of a complementary product.

Keywords: Invention, innovation, demand uncertainty, ex post entry, bundling, Intel, Microsoft, Netscape

JEL Classification: L12, L13, O31

Suggested Citation

Miller, David A., Invention Under Uncertainty and the Threat of Ex Post Entry (August 24, 2006). Available at SSRN: https://ssrn.com/abstract=319180 or http://dx.doi.org/10.2139/ssrn.319180

David A. Miller (Contact Author)

University of California, San Diego - Department of Economics ( email )

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La Jolla, CA 92093-0508
United States
858-822-0632 (Phone)

HOME PAGE: http://weber.ucsd.edu/~d9miller

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