Chapter

How Entrepreneurs Affect the Rate and Direction of Inventive Activity

Daniel F. Spulber

in The Rate and Direction of Inventive Activity Revisited

Published by University of Chicago Press

Published in print April 2012 | ISBN: 9780226473031
Published online February 2013 | e-ISBN: 9780226473062 | DOI: http://dx.doi.org/10.7208/chicago/9780226473062.003.0009
How Entrepreneurs Affect the Rate and Direction of Inventive Activity

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This chapter discusses how the strategic interaction between incumbents and innovators in the market for ideas shapes (and is shaped by) the potential for product market competition. On the one hand, if the market for ideas is efficient (e.g., there can be perfect, low-cost transfer of both new designs and process innovations), then incumbents and entrants will have an incentive to cooperate (rather than compete) in the commercialization process. However, when technology transfer of either product designs or processes is imperfect, then innovators will have an incentive to enter the product market and so start-up innovation will be associated with increased competition. An overarching lesson of the analysis is that the incentives for entry are higher when the underlying technologies are more (horizontally) differentiated from each other. Because the gains from cooperation are higher when the degree of differentiation is lower, the likelihood of entrepreneurial entry is higher under conditions of high product differentiation and imperfect technology transfer.

Keywords: entrepreneurs; incumbents; innovators; incentive

Chapter.  16659 words.  Illustrated.

Subjects: Economic Development and Growth

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