Intro rivalry value of innovation the optimal level

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Unformatted text preview: Evangelia Chalioti c A ll rights reserved. Intro Rivalry Value of innovation The optimal level of R&D expenditure di maximizes the net present value of the invention: PV fVi g di where i is the decision maker Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Value of innovation Optimal di maximizes PV fVi g FOC (MR = MC and thus, di ∂PV fV i g ∂d i 1 = 0): ∂PV fVi g =1 ∂di Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Optimal R&D expenditures under di¤erent market structures A monopolist protected by entry barriers in the research sector: PV (Vm ): the present value of the invention the optimal level of R&D expenditure: dm ) The optimal di is where the slope of PV fVi g curve is equal to 1. Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Optimal R&D expenditures under di¤erent market structures An entrant in the protected market: PV (Vc ): the present value of the invention the optimal level of R&D expenditure: dc Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Optimal R&D expenditures under di¤erent market structures The social planner: PV (Vs ): the present value of the invention the optimal level of R&D expenditure: ds Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Optimal R&D expenditures under di¤erent market structures A monopolist protected by entry barriers in the research sector spends less in R&D than what is socially desirable; dm < dc < ds Lecture 13: Patent race, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Intro Rivalry Value of innovation if R&D rivalry If there is active rivalry in the market for R&D: All potential innovators know that...
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