Endogenous network formation in patent contests and its role as a barrier to entry (original) (raw)
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The Evolution of Cooperation in Patent Races:Theory and Experimental Evidence
Journal of Economics - Zeitschrift für Nationalökonomie, 2005
In a dynamic patent race model we analyze the formation and breakup of joint ventures in relation to: (a) the relative as well as absolute position of the firms in the race; (b) the degree of competition in the ex post market. Fudenberg et al. (1983) studied the main features of a patent race when firms compete in R&D, showing that firms in the same position compete fiercely, dissipating the rent from innovation. By contrast, we show that if firms can cooperate or compete in R&D, and if they start in the same position, they cooperate at the outset but break their agreement in the last stage if they will be serious competitors in the downstream market, while, if they can collude in the ex post market, they cooperate from the outset and they innovate jointly. When the firms are lagged by one step, cooperation does not take place, except in the case the value of the race is negative and the cost saving due to cooperation is large. However, cooperation never occurs if the leader is more than one step ahead. Finally, when the firms cooperate in R&D they proceed to the discovery at low speed. We test these conclusions via experiments on the incentive to cooperate during the course of a race. The results of a sample of 86 races support our theoretical conclusions, although the experimental findings are less clear-cut than the theoretical ones.
2000
In a dynamic patent race model we analyze the formation and breakup of joint ventures in relation to: (a) the relative as well as absolute position of the firms in the race; (b) the degree of competition in the ex post market. Fudenberg et al. (1983) studied the main features of a patent race when firms compete in R&D, showing that firms in the same position compete fiercely, dissipating the rent from innovation. By contrast, we show that if firms can cooperate or compete in R&D, and if they start in the same position, they cooperate at the outset but break their agreement in the last stage if they will be serious competitors in the downstream market, while, if they can collude in the ex post market, they cooperate from the outset and they innovate jointly. When the firms are lagged by one step, coop-eration does not take place, except in the case the value of the race is negative and the cost saving due to cooperation is large. However, cooperation never occurs if the leader is mor...
1 COMPETING RESEARCH JOINT VENTURES IN PATENT RACES By
2003
Recent patterns show that most research joint ventures (RJVs) are not industrywide, but take place among a subset of the companies operating in the industry. So, while some members of an industry have formed RJVs, the others have responded by forming competing RJVs. The paper presents the results of an experimental investigation on the evolution of cooperation in patent races when more than two players are involved in the race, so that competing RJVs may occur. Ideed, the experimental evidence shows that competing coalitions very often emerge, and they spur the incentive to innovate. In addition, the larger the number of the players the lower the probability to collude during the race. Finally, players with an initial advantage in the race often are capable to pre-empt the rivals.
R&D Networks with Heterogenous Firms
2005
This paper models the formation of R&D networks in an industry where firms are technologically heterogenous, extending previous work by Goyal and Moraga (2001). While remaining competitors in the market side, firms share their R&D efforts on a pairwise base, to an extent that depends on their technological capabilities. First, we consider a four firms' industry. In the class of symmetric networks, the complete network is the only pairwise stable network, although not necessarily profit or social welfare maximizing. Then, we extend the analysis to asymmetric structures in a three firms' industry. Only the complete and the partially connected networks are possibly stable, but which network is stable depends on the level of heterogeneity and technological opportunities. The complete and partially connected networks are also the possible welfare and aggregate profit maximizing networks, but social and private incentives do not generally coincide. Finally, we consider the notion of strongly stable networks, where all the possible deviations by coalitions of agents are allowed. It turns out that in the four firms' case, the complete network is very rarely strongly stable, while in the three firms' case the partially connected network where two firms in different technological group are linked is, for a large subset of the parameter space, the only strongly stable network.
The Effect of Entry on R&D Networks
SSRN Electronic Journal, 2015
We investigate the effect of potential entry on the formation and stability of R&D networks considering farsighted firms. We show that the presence of a potential entrant often alters the incentives of incumbent firms to establish an R&D link. In particular, incumbent firms may choose to form an otherwise undesirable R&D collaboration in order to deter the entry of a new firm. Moreover, an incumbent firm may refrain from establishing an otherwise desirable R&D collaboration, expecting to form a more profitable R&D link with the entrant. Finally, potential entry may lead an inefficient incumbent to exit the market. We also perform a welfare analysis and show that market and societal incentives are often misaligned.
Markets with network externalities: non-cooperation vs.Cooperation in R&D
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This paper examines three strategies for R&D investments in oligopoly markets with network externalities. The Cell project of the Sony-Toshiba-IBM R&D joint venture motivates our analysis and presentation. In addition to the particular characteristics that apply to the Cell project, we develop formal economic explanations for observed R&D investment strategies in markets with network externalities. Our analytical model suggests that the degree of product compatibility, initial market shares, and the intensity of the product-market competition are instrumental to the R&D strategy in these markets. The paper ties together the literature on information technologies, strategy, and economics, and derives optimal patterns of strategic behavior in the R&D (pre-production) stage in oligopoly markets with network externalities.
The Optimal Level of Collaboration in Regular R&D Networks
Journal of Game Theory, 2012
In this paper we consider the social efficiency of the regular R&D network of oligopolistic firms, where every firm has the same nu mber o f partners engaged in research activ ities. In the studies conducted by Goyal-Moraga (2003) and Korkmaz (2012), the social welfare is maximised at some intermediate and undetermined level of connectivity (degree) if the rate of spillovers is higher than an undetermined threshold. In order to analyse the impact of spillovers' rate on the socially desirable level of collaborative research, we p rovide the analytical determination of both optimal degree of R&D collaboration and threshold level of spillovers. We find that an increasing nu mber o f firms reduces the threshold level, thus making a partial connection more desirab le fro m a social point of view. We also show that for a s mall rate of spillovers, private and social incentives coincide and the efficient network is comp lete, while for sufficiently high level of spillovers firms tend to form too many links.
Network rivalry, Competition and Innovation
Technological Forecasting and Social Change, 2020
Strategy, structure and rivalry across an industry has an impact upon innovation outcomes at the industry level. However, when patterns of rivalry are altered through the presence of strategic networks (sets of firms that cooperate closely on the basis of their web of strategic alliances) it is not clear what impact this has upon product market (price) competition and in factor markets (patents). Using data from the motor vehicle industry, we find only limited support for the notion that competitive responses vary with changes in network-level rivalry most likely due to co-opetition and a lack of stability across the networks. The results suggest that firms are likely to engage in co-opetition, thus changes in innovation outcomes can only be observed at the network level. When the presence of strong strategic networks leads to lower levels of rivalry on the basis of at least some cooperative behavior within the network (and competitive actions being focused on firms in other networks) we see a reduction in innovation at the network level. However, as the strategic networks changed consistently over time, the change in patenting behavior was limited.
We develop a model of strategic networks that captures two distinctive features of interfirm collaboration. bilateral agreements and nonexclusive relationships. Our analysis highlights the relationship between market competition, firms' incentives to invest in R&D, and the architecture of collaboration networks. In the absence of firm rivalry, the complete network, where each firm collaborates with all others, is uniquely stable, industry-profit maximizing, and efficient. By contrast, under strong market rivalry the complete network is stable, but intermediate levels of collaboration and asymmetric networks are more attractive from a collective viewpoint. This suggests that competing firms may have excessive incentives to form collaborative links.
Network-Independent Partner Selection and the Evolution of Innovation Networks
Management Science, 2010
Empirical research on strategic alliances has focused on the idea that alliance partners are selected on the basis of social capital considerations. In this paper we emphasize instead the role of complementary knowledge stocks (broadly defined) in partner selection, arguing not only that knowledge complementarity should not be overlooked, but that it may be the true causal force behind alliance formation. To marshal evidence on this point, we design a simple model of partner selection in which firms ally for the purpose of learning and innovating, and in doing so create an industry network. We abstract completely from network-based structural and strategic motives for partner selection and focus instead on the idea that firms' knowledge bases must "fit" in order for joint leaning and innovation to be possible, and thus for an alliance to be feasible. The striking result is that while containing no social capital considerations, this simple model replicates the firm conduct, network structure, and contingent effects of network position on performance observed and discussed in the empirical literature. * Authors are listed alphabetically.