Working Paper: NBER ID: w23138
Authors: Joshua S. Gans; Scott Stern
Abstract: The appropriability of innovation depends not only on the instruments available to an innovator to protect private returns, but how those instruments interact with each other as part of the firm’s entrepreneurial strategy. We consider the interplay between two appropriability mechanisms available to start-up innovators: control, whereby the innovator earns rents from their establishment of formal intellectual property rights, versus execution, whereby innovators earn returns through a first-mover advantage that yields dynamic benefits allowing the firm to “get ahead, stay ahead.” While most prior work has taken these instruments to be independent, we establish that these two alternative appropriability instruments are substitutes on the margin. For example, if the learning advantage from execution is sufficiently high, an entrepreneur might choose not to invest in a patent, even if intellectual property protection is costless. Moreover, the endogenous choice between control and execution is interdependent with other strategic choices of start-up innovators, such as the choice to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” version of their innovation versus delay commercialization until a product is available with a higher level of technical functionality and reliability.
Keywords: No keywords provided
JEL Codes: O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Control Strategy (E61) | Innovation Outcomes (O36) |
| Execution Strategy (Y60) | Innovation Outcomes (O36) |
| Execution Strategy (Y60) | Control Strategy (E61) |
| Control Strategy (E61) | Execution Strategy (Y60) |
| Control and Execution Strategies are Substitutes (E61) | Marginal Returns (D29) |
| Market Entry Timing, Customer Feedback, and Strategic Context (L10) | Control and Execution Strategies (E61) |