Econ 483_Lecture 6_Prizes_Contests

P rizes contests ebay cs c the sum of all

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Unformatted text preview: 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay CS c : the sum of all consumers’willingness to pay (WTP) at the competitive price c ) The social value of the innovation is CS since the society enjoys bene…ts r from this invention for ever.; r is the discount rate Suppose that the CS c of innovation i is vi . Thus, the social value of innovation i is Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, vi r. Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Choosing among ideas The most attractive idea is the one providing the greatest social surplus. If 1 v1 c 1 r 1 v2 c 2 r the sponsor will choose …rm 1’ idea and pay c1 . s Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay How do patent incentives perform if there is uncertainty about the research outcome? Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay π : per-period pro…t The value of the patent for the proprietor is the monopolist pro…t over the patent life T ; that is π T Suppose that the pro…t of innovation i is π i . Thus, the value of the patent i for the proprietor is π i T . Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Choosing among ideas If uncertainty: Suppose that only one of the ideas can be patented; the other would infringe. T : length of patent ; π 1 T & π 2 T : perspective patent rewards Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Choosing among ideas 1 If the patent values are high enough (i.e. if 2 π 1 T c1 & 1 π 2 T c2 ), 2 both …rms may enter a patent race, each winning with probability 1 . 2 Costs are duplicated. 1...
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This note was uploaded on 03/16/2014 for the course ECON 483 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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