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How Entrepreneurs Affect the Rate and Direction of Inventive Activity

How Entrepreneurs Affect the Rate and Direction of Inventive Activity

Chapter:
(p.277) 5 How Entrepreneurs Affect the Rate and Direction of Inventive Activity
Source:
The Rate and Direction of Inventive Activity Revisited
Author(s):
Daniel F. Spulber
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226473062.003.0009

This chapter discusses how the strategic interaction between incumbents and innovators in the market for ideas shapes (and is shaped by) the potential for product market competition. On the one hand, if the market for ideas is efficient (e.g., there can be perfect, low-cost transfer of both new designs and process innovations), then incumbents and entrants will have an incentive to cooperate (rather than compete) in the commercialization process. However, when technology transfer of either product designs or processes is imperfect, then innovators will have an incentive to enter the product market and so start-up innovation will be associated with increased competition. An overarching lesson of the analysis is that the incentives for entry are higher when the underlying technologies are more (horizontally) differentiated from each other. Because the gains from cooperation are higher when the degree of differentiation is lower, the likelihood of entrepreneurial entry is higher under conditions of high product differentiation and imperfect technology transfer.

Keywords:   entrepreneurs, incumbents, innovators, incentive

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