Innovators Firms And Markets

Conventional wisdom holds that robust enforcement of intellectual property (IP) right suppress competition and innovation by shielding incumbents against the entry threats posed by smaller innovators. That assumption has driven mostly successful efforts to weaken US patent protections for over a decade. This book challenges that assumption. In Innovators, Firms, and Markets, Jonathan M. Barnett confronts the reigning policy consensus by analyzing the relationship between IP rights, firm organization, and market structure. Integrating tools and concepts from IP and antitrust law, institutional economics, and political science, real-world understandings of technology markets, and empirical insights from the economic history of the US patent system, Barnett provides a novel framework for IP policy analysis. His cohesive framework explains how robust enforcement of IP rights enables entrepreneurial firms, which are rich in ideas but poor in capital, to secure outside investment and form the cooperative relationships needed to transform a breakthrough innovation into a marketable product. The history of the US patent system and firms' lobbying tendencies show that weakening patent protections removes a critical tool for entrants to challenge incumbents that enjoy difficult-to-match commercialization and financing capacities. Counterintuitively, the book demonstrates that weak IP rights are often the best entry barrier the state can provide to protect entrenched incumbents against disruptive innovators. By challenging common assumptions and offering a powerful integrated framework for understanding how innovation happens and the law's role in that process, Barnett's Innovators, Firms, and Markets provides important insights into how IP law shapes our economy.

"This book presents a theoretical, historical and empirical account of the relationship between intellectual property rights, organizational type and market structure. Patents expand transactional choice by enabling smaller R&D-intensive firms to compete against larger firms that wield difficult-to-replicate financing, production and distribution capacities. In particular, patents enable upstream firms that specialize in innovation to exchange informational assets with downstream firms that specialize in commercialization, lowering capital and technical requirements that might otherwise impede entry. These theoretical expectations track a novel organizational history of the U.S. patent system during 1890-2006. Periods of strong patent protection tend to support innovation ecosystems in which smaller innovators can monetize R&D through financing, licensing and other relationships with funding and commercialization partners. Periods of weak patent protection tend to support innovation ecosystems in which innovation and commercialization mostly take place within the end-to-end structures of large integrated firms. The proposed link between IP rights and organizational type tracks evidence on historical and contemporary patterns in IP lobbying and advocacy activities. In general, larger and more integrated firms (outside pharmaceuticals) tend to advocate for weaker patents, while smaller and less integrated firms (and venture capitalists who back those firms) tend to advocate for stronger patents. Contrary to conventional assumptions, the economics, history and politics of the U.S. patent system suggest that weak IP rights often shelter large incumbents from the entry threat posed by smaller R&D-specialist entities"--

The past two decades have seen a gradual but noticeable change in the economic organization of innovative activity. Most firms used to integrate research and development with activities such as production, marketing, and distribution. Today firms are forming joint ventures, research and development alliances, licensing deals, and a variety of other outsourcing arrangements with universities, technology-based start-ups, and other established firms. In many industries, a division of innovative labor is emerging, with a substantial increase in the licensing of existing and prospective technologies. In short, technology and knowledge are becoming definable and tradable commodities. Although researchers have made significant advances in understanding the determinants and consequences of innovation, until recently they have paid little attention to how innovation functions as an economic process. This book examines the nature and workings of markets for intermediate technological inputs. It looks first at how industry structure, the nature of knowledge, and intellectual property rights facilitate the development of technology markets. It then examines the impacts of these markets on firm boundaries, the division of labor within the economy, industry structure, and economic growth. Finally, it examines the implications of this framework for public policy and corporate strategy. Combining theoretical perspectives from economics and management with empirical analysis, the book also draws on historical evidence and case studies to flesh out its research results.

Technical advance requires resources and is motivated by the quest for profits; therefore, the rate and direction of advance is determined by the economic system. Recognition of this fact has focused attention on the performance of the market economy in the allocation of resources to technical advance, and the consequent body of research is surveyed and synthesised in this book. The theories of market structure and innovation proposed by Schumpeter, Galbraith, Arrow, Schmookler, Scherer, Mansfield, Phillips, Barzel, Kamien and Schwartz, Loury, Nelson and Winter, Grabowski, Dasgupta and Stiglitz, and others are presented in an integrated form. These theories deal with the nature of competition, the incentives to innovate and the pace of innovative activity under different market structures, and the existence of a market structure that yields the most rapid rate of innovation. In addition, the findings of seventy empirical studies dealing with various facets of the microeconomics of technical innovation are presented. The book is designed to be accessible to economists working in a variety of situations - in universities, business and government - and who are concerned with questions of technical innovation. It is also suitable for senior-level undergraduates and first year graduate students approaching the subject in a comprehensive way for the first time.

"The average life expectancy at "birth" of a firm is roughly 15 years, and only one out of twenty lives longer than fifty years. Firms are born, they grow, then they struggle to keep up with changing markets. Slow adapters often become big losers, fall by the wayside, and die. Serial Innovators studies the factors affecting the aging of firms, particularly those that slow down their ability to adapt to changes in the marketplace. The book reviews recent findings in relevant academic fields—behavioral economics, psychology, neuroscience, organizational science, network theory, anthropology, sociology, and strategy—to understand how firms, as they grow, develop rigidities that prevent change. It develops a model of organization that is adaptive, innovative, and can create significant value for its stakeholders for long periods of time".

"The average life expectancy at "birth" of a firm is roughly 15 years, and only one out of twenty lives longer than fifty years. Firms are born, they grow, then they struggle to keep up with changing markets. Slow adapters often become big losers, fall by the wayside, and die. Serial Innovators studies the factors affecting the aging of firms, particularly those that slow down their ability to adapt to changes in the marketplace. The book reviews recent findings in relevant academic fields—behavioral economics, psychology, neuroscience, organizational science, network theory, anthropology, sociology, and strategy—to understand how firms, as they grow, develop rigidities that prevent change. It develops a model of organization that is adaptive, innovative, and can create significant value for its stakeholders for long periods of time".

Creative work has been celebrated as the highest form of achievement since at least Aristotle. But our understanding of the dynamics and market for creative work--artistic work in particular--often relies on unexamined clichés about individual genius, industrial engineering of talent, and the fickleness of fashion. Pierre-Michel Menger approaches the subject with new rigor, drawing on sociology, economics, and philosophy to build on the central insight that, unlike the work most of us do most of the time, creative work is governed by uncertainty. Without uncertainty, neither self-realization nor creative innovation is possible. And without techniques for managing uncertainty, neither careers nor profitable ventures would surface. In the absence of clear paths to success, an oversupply of artists and artworks generates boundless differentiation and competition. How can artists, customers, entrepreneurs, and critics judge merit? Menger disputes the notion that artistic success depends solely on good connections or influential managers and patrons. Talent matters. But the disparity between superstardom and obscurity may hinge initially on minor gaps in intrinsic ability. The benefits of early promise in competition and the tendency of elite professionals to team up with one another amplify and disproportionately reward even small differences. Menger applies his temporal and causal analysis of behavior under uncertainty to the careers and oeuvres of Beethoven and Rodin. The result is a thought-provoking book that brings clarity to our understanding of a world widely seen as either irrational or so free of standards that only power and manipulation count.

Utilizing a unique data set, Zoltan Acs and David Audretsch provide a rich empirical analysis of the increased importance of small firms in generating technological innovations and their growing contribution to the U.S. economy. They identify the contributions made by both small and large firms to the innovative process and the manner in which market structure, and the firm-size distribution in particular, responds to technological change. The authors' analysis relies on traditional theories of industrial organization and tests existing hypotheses, many of them previously untested due to data constraints. Innovation and Small Firms brings together two large data bases recently released by the U. S. Small Business Administration - one directly measuring innovative activity for large and small firms, the other providing a detailed census of economic activity for all manufacturing firms and plants across a broad spectrum of industries. Acs and Audretsch describe and evaluate the data bases in the context of the literature on innovation, market structure, and firm size. They present their findings on the presence of small firms, small-firm entry in manufacturing, small-firm growth and flexible technology, and mobility and firm size. They compare static and dynamic measures of small-firm viability and address the relationships between R&D, innovation, and productivity, and analyze the interaction between technological regimes and the role of government in innovation.