Profiting from Voluntary Information Spillovers: How Users Benefit by Freely Revealing Their Innovations

Abstract

Empirical studies of innovation have found that end users frequently develop important product and process innovations. Defying conventional wisdom on the negative effects of uncompensated spillovers, innovative users also often openly reveal their innovations to competing users and to manufacturers. Rival users are thus in a position to reproduce the innovation in-house and benefit from using it, and manufacturers are in a position to refine the innovation and sell it to all users, including competitors of the user revealing its innovation. In this paper, we explore the incentives that users might have to freely reveal their proprietary innovations. We then develop a game-theoretic model to explore the effect of these incentives on users' decisions to reveal or hide their proprietary information. We find that, under realistic parameter constellations, free revealing pays. We conclude by discussing some implications of our findings.

Keywords: innovation, spillovers, diffusion, lead user

JEL Classification: O31, L20, D23