Summary of Profiting from Technological Innovation

Summary of Profiting from technological innovation : Implication for integration, collaboration, licensing and public policy

By Sung Jin Kwon (2013712207)

This paper attempts to explain why innovating firms often fail to obtain significant economic returns from an innovation, while customers, imitators and other industry participants benefit. Business strategy - particularly as it relates to the firm's decision to integrate and collaborate - is shown to be an important factor. The paper demonstrates that when imitation is easy, markets don't work well, and the profits from innovation may accrue to the owners of certain complementary assets, rather than to the developers of the intellectual property.

Profiting from innovation : Basic building blocks

1. Regimes of appropriability: Environmental factors that govern an innovator's ability to capture the profits enerated by an innovation. Key dimensions are: Legal instruments (Patents, Copyrights, Trade secrets) and Nature of technology (Product, Process, Tacit, Codified). Tight appropriability regimes: The good protection of innovation either through legal, or/and through nature of technology. This leads to a good chance for the innovator of translating its innovation into market value for some period of time. Weak appropriability regimes : The innovators must turn to business strategy if they are to keep imitators/followers at bay.

2. Dominant design paradigm: two stages in the evolutionary development of a product: preparadigmatic stage (no single generally accepted conceptual treatment of the phenomenon), and the paradigmatic stage (agreed upon “standards”, referred as “normal”). When imitation is possible and occurs coupled with design modification before the emergence of a dominant design, followers have a good chance of having their modified product as the industry standard, often to the great disadvantage of the innovator. Preparadigmatic phase: The innovator must be careful to let the basic design...