On the timing of innovation and imitation

Billette de Villemeur, Etienne and Ruble, Richard and Versaevel, Bruno (2015): On the timing of innovation and imitation.

Abstract

When fixed costs of innovation and imitation differ, strategic competition between duopolists involves either preemption or attrition, the latter being likelier with high uncertainty. We show that industry value is maximized when firms neither stall nor hasten entry, whereas social welfare has local optima in both the attrition and preemption ranges. The social optimum implies a positive imitation cost, and with static business-stealing and sufficient discounting it involves preemption. Finally we endogenize entry barriers and discuss contracting, showing that firms are more likely to rely on secrecy and patents at low imitation costs and that simple licensing schemes are welfare improving.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic oligopoly; Knowledge spillover; Real options
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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