Selling licences for a process innovation: the impact of the product market on the selling mechanism

Abstract.  This article considers the sale by a research lab of licences for a cost-reducing innovation. The marginal cost of a firm that wins a licence is private information and the acquisition of a licence imposes a negative externality on the other firms. The lab's optimal revenue is determined from a class of mechanisms in which the lab selects the number of licences and the reserve price before the sale. The role of the downstream product market in the determination of the number of licences is analyzed. Furthermore, it is also shown that the optimal reserve price may be zero.     

Research and development and trade policies for product innovation in the presence of foreign competition

This paper examines two policy instruments — a matching grant and import tariffs — for encouraging research and development (R&D) in product innovation by a domestic firm when it faces foreign competition. We do so by developing a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. We examine the effects of a reduction in import tariffs on private expenditure on R&D, on public support for such R&D, and on total R&D expenditure. We find that in response to a reduction in import tariffs, the domestic firm always reduces its private R&D investments, but the total level of R&D expenditure (i.e., including public support) might go up depending on the level of tariffs. In particular, we find that it will go up if the initial level of tariff is higher than a critical level. When tariff is endogenous, we find that the socially optimal level of tariffs is positive. One finding that is of particular interest is that supporting private attempts to product innovate in the form of a matching grant program leads to a socially optimal level of product R&D.     

The social value of information on product quality

In the context of a seller with private information about product quality, I show that revelation of information on product quality is sometimes, but not always, socially valuable. When it is socially valuable, there is generally a tradeoff between the acquisition and revelation of finer, but more costly information and the revelation of coarser, but less costly information. As a result, it can be socially optimal for firms to reveal only coarse private information.     

Organization Design and Information-Sharing in a Research Joint Venture with Spillovers

The paper presents a non-tournament model of process innovation with spillovers in the R&D process when firms engage in Cournot competition in the product market. It is shown that careful modelling of information-sharing and coordination of research activities leads to the conclusion that a Research Joint Venture (RJV) will economize on scarce R&D resources. There is an analysis of the effects of R&D cooperation, in the form of an RJV, on the organization of R&D, i.e. the efficient number of research labs. R&D expenditure, which precedes production, results in lower unit costs. R&D is modelled as a two-stage process: in the first stage, firms incur expenditure that will generate new knowledge, while in the second stage this knowledge is employed to reduce unit costs. A distinction is made between single and complementary research paths. It is shown that the RJV will operate one lab in the case of a single research path exploiting its coordination advantage. In the case of complementary research paths the number of labs the RJV will operate crucially depends on the stage of the R&D process at which diminishing returns occur: it will operate both labs when diminishing returns occur at the first stage (creation of knowledge), while it will be indifferent as to the number of labs, one or two, when diminishing returns occur in the second stage (cost reduction).     

PUBLIC–PRIVATE PARTNERSHIP TO DEVELOP TECHNOLOGY INFRASTRUCTURE: A CASE STUDY OF THE ECONOMIC RETURNS OF DNA DIAGNOSTICS

This paper presents a quantitative case analysis of one US Advanced Technology Program (ATP) public–private partnership that advanced the technology infrastructure of molecular diagnostics, resulting in substantial downstream economic and public health benefits. Biotechnology R&D is generally characterized by technologies requiring substantial investments in time, money, and effort to develop and sustain concepts through long incubation times. Public sponsorship of a partnership between two companies who would have not otherwise collaborated, Affymetrix and Molecular Dynamics, accelerated the development of DNA microarrays and DNA sequencing technologies and induced innovation at competitor firms. Public sponsorship of private-company research accelerated the completion of the Human Genome Project and improved both the quality and rapidity with which the biotechnology industry and medical science acquire genetic information. Counterfactual scenarios were used to quantify net public benefits by estimating the hypothetical costs of achieving the same outcomes as using the processes and technologies the ATP-cofunded innovations superseded.     

Patent Protection and R&D Incentives Under Incomplete Information

When tournament effect is negative, under complete information, whether patent protection increases the incentive for R&D is ambiguous. It depends on the extent of spillover of the new technology. In particular if that amount is less than a threshold value then patent protection increases the incentive for R&D, otherwise it does not. This note considers incomplete information framework where the spillover parameter is private information. In this framework it is shown that there are situations where patent protection unambiguously increases incentive for R&D. This happens if the distribution function of the spillover parameter is sufficiently skewed and the cost of doing research is sufficiently high even when tournament effect is negative.

     

Are Public Firms Always Less Innovative than Private Firms?

The effect of information spillovers is analysed in a mixed duopoly where a profit‐maximizing private firm and a market‐share‐maximizing public firm decide whether to invest in a process innovation. It is shown that, when the spillover effect is rather strong, the public firm innovates in order to acquire a larger market share, while the private firm prefers that its rival invests in the new technology and reaps the benefits of technological leakages if investment costs are moderate. Thus, when information spillovers are taken into account, the public firm sometimes behaves more innovatively than the private firm, which is contrary to the well‐known results. Furthermore, in a mixed duopoly where only the public firm invests, its average cost exceeds that of its competitor, but investment remains an efficient strategy compared with non‐investment.     

Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis

This paper studies the timing of subsidies for emissions-saving research and development (R&D) and how innovation policy is influenced by a carbon tax. We develop a dynamic computable general equilibrium (CGE) model with both general R&D and specific emissions-saving R&D. We find two results that are important when subsidizing emissions-saving R&D in order to target inefficiencies in the research markets. First, the welfare gain from subsidies is larger when the carbon tax is high. This is because a high carbon tax raises the social value of the emissions-saving technology and that this increase in value is not fully appropriated by the private firms. Secondly, the welfare gain is greater when there is a falling time profile of the rate of subsidies for emissions-saving R&D, rather than a constant or increasing profile. The reason is that knowledge spillovers are larger in early periods.     

产品市场竞争、知识外溢与企业技术效率提升

利用248家国防科技相关企业与具有军工资质的民营企业2009-2017年面板数据,分2009-2012年、2013-2017年两阶段研究产品市场竞争、知识外溢与企业技术效率间的关系。结果发现,产品市场竞争对于企业技术效率提升具有显著促进作用;相较于国防科技相关企业,这种正向效应在具有军工资质的民企中表现得更为显著,并且随着国防与民营经济的融合发展,这两种正向效应更为显著。进一步引入知识外溢与产品市场竞争交互项发现,无论是技术人员知识外溢还是技术人员产出外溢,随着外溢程度增加,均会抑制产品市场竞争对企业技术效率的正向影响;在国有国防科技相关企业中,技术人员产出外溢效应的抑制作用更强。     

Racing in two dimensions

In this paper we study an industry in which there is an ongoing sequence of R&D races between two firms. Firms are engaged in product innovation. Products are horizontally and vertically differentiated. There are two key characteristics/dimensions to products, and the level at which these are embodied in products can be increased by R&D. At each time firms can spend R&D on improving their product in one or both dimensions. We allow the possibility of economies scope — so R&D undertaken in one dimension can spillover to the other. The question we are interested in is whether a firm that is ahead in a single dimension but behind in another will focus all its R&D effort in the area in which it is ahead (product specialisation), or whether it will try to do R&D in both dimensions in the hope that it might get ahead in both and end up with a superproduct that dominates in both characteristics. The outcome of this R&D competition determines a Markov transition probability matrix determining the evolution of the industry. We show that when the R&D technology is characterized by constant returns then the only steady-state outcome is one in which the economy stays forever in a position in which one firm produces a super-product and the other gives up doing R&D altogether. This outcome is unaffected by the degree of economies of scope. When the R&D technology is characterised by decreasing returns, then the industry will visit all states and so will exhibit both product specialisation and superproduct dominance at various times. Now the extent of economies of scope matters and we show that the greater the extent of economies of scope, the less likely is the industry to exhibit product dominance, and the more likely it is to exhibit product specialisation.     

Spillovers,subsidies, and second‐best socially optimal R&D

This paper provides a thorough second‐best welfare analysis of the standard two‐stage model of R&D/product market competition with R&D spillovers. The planner's solution is compared to the standard non‐cooperative scenario, the R&D cartel, and the cartelized research joint venture (or joint lab). We introduce the notion of a social joint lab, as a way for the planner to avoid wasteful R&D duplication. With no spillovers, the non‐cooperative scenario, the joint lab, and the second‐best planner's solutions coincide. However, with spillovers, all three scenarios yield R&D investments that fall short of the socially optimal level. To shed light on the role of the spillover level on these comparisons, we observe that the gaps between the market outcomes and the planners solutions widen as the spillover parameter increases. Finally, we establish that a social planner and a social joint lab solutions may be achieved starting from any of the three scenarios by offering firms respective suitably weighted quadratic R&D subsidization schedules.     

An investigation over inbound open innovation in SMEs: insights from an Italian manufacturing sample

ABSTRACT

Building on the Open Innovation (OI) framework, the purpose of this paper is to examine the R&D inbound model of small and medium enterprises (SMEs). Specifically, we focus on the impact of different horizontal R&D collaborations on product innovation and innovation performance. Hypotheses are tested using a Probit/Tobit regression on an Italian sample of 2591 manufacturing SMEs. Our analysis shows that collaborating with different horizontal R&D partners brings to different innovation outcomes. In particular, R&D collaboration with universities has a positive impact on product innovation, but not on innovation performance. Whereas, R&D collaboration with research centres and other private companies has a positive impact on both product innovation and innovation performance. Our findings provide implications for SMEs managers and entrepreneurs who have to decide between R&D partners for their innovation strategy. Avenues for future research are discussed.     

HOW DO SPATIAL SPILLOVERS DIFFUSE IN SCIENCE–INDUSTRY INTERACTIONS? THE CASE OF FRENCH BIOTECH SECTOR

The objective of this article is to study the interactions that exist between public research and private research in the French biotechnology sector. These interactions are observable at a double level. On the one hand, public research can influence private research, and conversely. Researchers of these two spheres develop important relations of cooperation. We then seek to identify these mutual influences and to measure their spatial dimension. Using asymptotic least squares method, we show that spillovers can diffuse through cooperation in upstream and downstream phases of the innovation process. On the other hand, spillovers resulting from public or private research, when measured by an external stock of knowledge, would be located, in so far as they exist.     

The value of information in a principal-agent model with moral hazard: The ex post contracting case

In a principal-agent model with moral hazard, a signal about the principal?s technology — the stochastic mapping from the agent?s action to the outcome — is observed before the contract is offered. The signal is either uninformative (null information), informative and observed only by the principal (private information), or also observed by the agent (public information). We show that, from an ex ante standpoint (before the signal is observed): (i) the agent prefers private to both null and public information; (ii) the principal sometimes prefers null to both private and public information; and (iii) when the principal prefers public to null information, she prefers public to private information, whereas the agent prefers private to public information. In this last situation, we also show that (iv) for any separating equilibrium with private information, there exists a contract with public information that both strictly prefer.     

The optimal choice of pre-launch reviewer

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed. Price flexibility boosts the positive impact on consumer beliefs of passing a tough test and mitigates the negative impact of failing a soft test. As a result, profits are convex in toughness: the firm selects either the toughest or softest test available. The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an “innovative” product); the softest test is optimal when signals are sufficiently informative.     

外部研发合作广度与新产品开发绩效：一个有调节的中介模型

基于企业外部合作伙伴分布广泛的特点,从外部研发合作广度的两个维度（市场广度和研究广度）出发,选取2010—2018年160家中国制造业上市企业数据,运用多元回归分析法探讨外部研发合作广度对企业新产品开发绩效的影响。结果表明,外部研发合作的市场广度和研究广度正向影响新产品开发绩效,其中,研究广度的作用更为显著;网络学习在外部研发合作广度对新产品开发绩效的影响机制中存在部分中介作用;知识库同质性正向调节外部研发合作广度与网络学习的关系。结论丰富了新产品开发绩效前因变量研究,对企业制定外部研发合作战略,提升新产品开发绩效具有重要管理启示。     

Public Technology Infrastructure,R&D Sourcing,and Research Joint Ventures

In this paper, we define public technology infrastructure to mean public resources that bring new R&D into existence. Examples are public research that yields knowledge spillovers and government contracts that broker new research. Using this definition we explore the effect of public infrastructure on cooperative R&D, especially R&D sourcing and research joint ventures (RJVs). Our findings strongly suggest that public infrastructure promotes cooperative R&D. We begin by studying the role of federal laboratories in R&D sourcing by private laboratories, finding that sourcing increases as a result. Then we examine patents arising from RJVs sponsored by the Advanced Technology Program (ATP). We find that R&D subsidies as well as difficulty and novelty increase patents produced by the RJVs. Contractual oversight by ATP has no direct effect but an indirect effect appears to exist, since firms value ATP oversight more highly for more difficult and novel projects, and these produce more patents.     

Technological spillover through industrial and regional linkages: Firm-level evidence from China

This paper provides new insights into the study of technology spillover effects through the interaction between industrial and spatial linkages. We develop a theoretical model that provides a useful modeling framework for spillover research, and then empirically test the model inferences using Chinese firm-level data. Input-output tables and spatial decay measurements are combined to construct the key spillover variables. Using seemingly unrelated regressions, the paper finds that vertical spillover effects are more significant than horizontal spillover effects, both within- and between-regions; regional characteristics have greater impacts on vertical spillovers than on horizontal spillovers; and regional spillover effects vary across different regions. Regional policies and regional endowments, including human capital, transportation infrastructure, and enterprise ownership, are crucial in explaining these heterogeneities in regional technology spillover. Our empirical results provide many policy implications including strengthening the connection between upstream and downstream industries and devoting more R&D to upstream industries.     

An analysis of factors improving technology roadmap credibility: A communications theory assessment of roadmapping processes

In recent years, many industrial firms have been able to use roadmapping as an effective process methodology for projecting future technology and for coordinating technology planning and strategy. Firms potentially realize a number of benefits in deploying technology roadmapping (TRM) processes. Roadmaps provide information identifying which new technologies will meet firms' future product demands, allowing companies to leverage R&D investments through choosing appropriately out of a range of alternative technologies. Moreover, the roadmapping process serves an important communication tool helping to bring about consensus among roadmap developers, as well as between participants brought in during the development process, who may communicate their understanding of shared corporate goals through the roadmap. However, there are few conceptual accounts or case studies have made the argument that roadmapping processes may be used effectively as communication tools. This paper, therefore, seeks to elaborate a theoretical foundation for identifying the factors that must be considered in setting up a roadmap and for analyzing the effect of these factors on technology roadmap credibility as perceived by its users. Based on the survey results of 120 different R&D units, this empirical study found that firms need to explore further how they can enable frequent interactions between the TRM development team and TRM participants. A high level of interaction will improve the credibility of a TRM, with communication channels selected by the organization also positively affecting TRM credibility.     

Rank-order tournaments and selection

Rank-order tournaments are often presented as devices for aligning incentives in a principal-agent setting. In most of this literature agents are expected to be identical so that the principal is indifferent ex ante as to who wins the contest, implying that the selection properties of the tournament can be ignored. In this paper we consider a tournament which is not necessarily symmetric, and in which agent type is private information. The principal cares about who wins, but the basic tournament will not achieve perfect selection; the lower-type agent may sometimes win. In a two-player tournament we present a simple reward system in which the winner's reward depends upon which (if any) of two “test standards” is passed; conditions are presented under which this system allows the principal to choose the best agent. This system can be extended in a simple manner to rank types in ann-player tournament. We suggest that the theory can be applied to internal labor markets and research contests.