Working Paper: CEPR ID: DP8870
Authors: Emeric Henry; Francisco Ruizaliseda
Abstract: A large portion of innovators do not patent their inventions. This is a relative puzzle since innovators are often perceived to be at the mercy of imitators in the absence of legal protection. In practice, innovators however invest actively in making their products technologically hard to reverse-engineer. We consider the dynamics of imitation and investment in such protection technologies, both by the innovator and by imitators. We show that it can justify high level of profits beyond patents and can account for the differences across sectors in the propensity to patent. Surprisingly, in general, the protection technologies that yield the highest profits for the innovator are expensive and do not protect well. Our model also allows us to draw conclusions on the dynamics of mobility of researchers in innovative industries.
Keywords: complexity; dynamic games; imitation; innovation
JEL Codes: C73; O31; O32; O33; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment in protective technologies (O33) | Speed and extent of imitation (C59) |
| Costs associated with imitation (L15) | Decision to enter the market (D40) |
| Interaction between levels of protection and costs of imitation (L15) | Profit levels for innovators (O39) |
| Investment in technological complexity (O39) | High profits for innovators (O36) |
| Technological complexity (O33) | Propensity to patent (O34) |
| Imitators' costs and innovator's actions (O31) | Timing of market entry (G14) |