Richard C. Levin

Appropriating the Returns from Industrial Research and Development

To HAVE the incentive to undertake research and development, a firm must be able to appropriate returns sufficient to make the investment worthwhile. The benefits consumers derive from an innovation, however, are increased if competitors can imitate and improve on the innovation to ensure its availability on favorable terms. Patent law seeks to resolve this tension between incentives for innovation and widespread diffusion of benefits. A patent confers, in theory, perfect appropriability (monopoly of the invention) for a limited time in return for a public

Empirical Studies of Innovation and Market Structure

Publisher Summary This chapter discusses the perceptible movement of empirical scholars from a narrow concern with the role of firm size and market concentration toward a broader consideration of the fundamental determinants of technical change in industry. Although tastes, technological opportunity, and appropriability conditions themselves are subject to change over time, particularly in response to radical innovations that alter the technological regime, these conditions are reasonably assumed to determine inter-industry differences in innovative activity over relatively long periods. Although a substantial body of descriptive evidence has begun to accumulate on the way the nature and effects of demand, opportunity, and appropriability differ across industries, the absence of suitable data constrains progress in many areas. It has been observed that much of the empirical understanding of innovation derives not from the estimation of econometric models but from the use of other empirical methods. Many of the most credible empirical regularities have been established not by estimating and testing elaborate optimization models with published data but by the painstaking collection of original data, usually in the form of responses to relatively simple questions.

On the sources and significance of interindustry differences in technological opportunities

The set of technological opportunities in a given industry is one of the fundamental determinants of technical advance in that line of business. We examine the concept of technological opportunity and discuss three categories of sources of those opportunities: advances in scientific understanding and technique, technological advances originating in other industries and in other private and governmental institutions, and feedbacks from an industrys own technological advances. Data from the Yale Survey on Industrial Research and Development are used to measure the strength of various sources of technological opportunity and to discern interindustry differences in the importance of these sources. We find that interindustry differences in the strength and sources of technological opportunities contribute importantly to explanations of cross-industry variation in R&D intensity and technological advance.

Cost-Reducing and Demand-Creating R&D with Spillovers

This paper analyzes R&D policies when the returns to cost-reducing and demand-creating R&D are imperfectly appropriable and market structure is endogenous. Previous characterizations of appropriability are generalized to permit the possibility that own and rival R&D are imperfect substitutes. We also describe how. equilibrium expenditures on process and product R&D, as well as equilibrium market structure, depend on technological opportunities and spillovers. In contrast to previous work, diminished appropriability does not necessarily reduce R&D expenditures. For example, under some conditions, an increase in the extent of process (product) spillovers will lead to an increase in product (process) R&D. We estimate several variants of the model using manufacturing line of business data and data from a survey of R&D executives.

Vertical integration and profitability in the oil industry

Abstract Several economists have argued that considerations of efficiency in production and transactions favor vertical integration in the oil industry. Others maintain the vertical integration enhances market power. To simultaneously test the implications of both arguments, data are assembled on the structure and performance of a sample of the large U.S. in companies over a twenty five year period. No support is found for the hypothesis that profit rates are increased by the degree of vertical integration between crude oil production and refining, but there is weak evidence that the variability of profits is reduced. The paper goes on to examine evolutionary evidence, concluding that the present pattern of vertical integration was largely shaped by adaptations to unique circumstances during historical periods when vertical integration was temporarily favored on efficiency grounds.