Profitable Innovation Without Patent Protection: The Case of Derivatives

Investment banks develop their own innovative derivatives to underwrite corporate issues but they cannot preclude other banks from imitating them. However, during the process of underwriting an innovator can learn more than its imitators about the potential clients. Moving first puts him ahead in the learning process. Thus, he develops an information advantage and he can capture rents in equilibrium despite being imitated. In this context, innovation can arise without patent protection. Consistently with this hypothesis, case studies of recent innovations in derivatives reveal that innovators keep private some details of their deals to preserve the asymmetry of information.Financial innovation, first-mover advantages, asymmetric information, learning-by-doing

Profitable Innovation Without Patent Protection: The Case of Derivatives.

Investment banks find it profitable to invest in the development of innovative derivative securities even without being able to preclude early competition from other investment banks using patents. To explain this, we assume that the developer can learn from the first issues of the innovative financial product and is able to become the expert issuer by the time imitation enters the market. We show how this becomes an informational first-mover advantage that turns innovators into the market leader. It is this advantage, and not the typical temporary monopoly position awarded to a patent holder, that provides the incentive to pay the development costs. In the aftermath, the innovator ends up with the largest share of the underwriting market and makes positive profits. Our model’s predictions are consistent with many stylized facts of financial innovations by investment banks.Financial innovation; first-mover advantages; asymmetric information; learning-by-doing

Non-obviousness and Screening

The paper offers a novel justification for the non-obviousness patentability requirement. An innovation involves two stages: research results in a technology blueprint, which development transforms into a profitable activity. An innovator, who is either efficient or inefficient, must rely on outside finance for the development. Only patented technologies are developed. Strengthening the non-obviousness requirement alleviates adverse selection by discouraging inefficient innovators from doing research, but creates inefficiencies by excluding marginal innovations. We show that it is socially optimal to raise the non-obviousness requirement so as to exclude bad innovators; we also provide several robustness checks and discuss the policy implications

Housing supply chain model for innovation: research report

The aim of this research is to undertake a case study analysis of successful delivery of an innovation to the Australian housing construction industry. This study is conducted on the “innovator group”; that is, the group that created the idea of an innovation for the housing sector and then were intimately involved in creation, development and diffusion. It is apparent that there were key players involved in this process which are representative of various organisations along the supply chain – designer, developer, subcontractor and supplier. Much rhetoric states that integration of the supply chain actors will solve construction problems, however, in reality we know little beyond this in the Australian context as there has been little research conducted previously. This study will examine in detail the process undertaken by this particular group to deliver an innovation to the housing sector which required an integrated construction supply chain model. This report was published by the Australian Housing Supply Chain Alliance and written by Professor Kerry London, School of Property, Construction and Project Management, RMIT University with Research Fellow, Jessica Siva

Chain networks as a leverage for innovation capacity : the case of food SMEs

&nbsp;Nowadays, innovation is no longer limited to the individual firm but involves increasingly the chain network in which the firm is embedded. The chain network is considered as the place where the internal and external resources of a firm are combined and transformed, leading to innovation capacity. In the increasingly globalizing market, innovation is an important strategic tool for small and medium sized enterprises (SMEs) to achieve competitive advantage. However, SMEs are often confronted with barriers for developing and introducing innovations, such as the lack of economies of scale. Our paper investigates how the chain network is contributing to the enhancement of the innovation capacity and which chain network characteristics are crucial in this process. In contrast to previous studies at chain network level, in our research specific chain networks are investigated and compared to each other. Hence, data collection took place at different chain network levels, being the supplier, the food manufacturer and the customer, working together and consequently belonging to one specific and unique chain network.The analysis of innovation capacity at the chain network level is realized by means of cluster analysis. This results in a three-cluster solution dividing the sample into Non-innovator chain networks, Customer-driven innovator chain networks and food manufacturer-supplier-driven innovator chain networks. Next, the influence of the chain network on the innovation capacity is examined. Thereby, the three achieved clusters differ significantly related to certain chain network characteristics. The following characteristics form an important leverage for the innovation capacity: firm size, profitability and business growth of the chain network members, as well as higher dependency, and lower levels of integration, rewarding power, social satisfaction and collaboration. The distinction of Customer-driven and food manufacturer-supplier-driven innovator chain networks reveals that the involvement of the chain network partners for the enhancement of the innovation capacity is a very important aspect. In future research, the degree of complexity of the studied system should gradually be increased, namely from a chain network of three members to more complex chain networks.</p

Knowledge disclosure as intellectual property rights

We study a model in which an inventor discloses knowledge about its innovation and then a rival chooses the probability of attaining a competing invention. Disclosures, by creating prior art, diminish the probability that the rival has of receiving a patent for its invention (legal externality), but, by revealing knowledge, they decrease the marginal cost of R&D (knowledge externality). We stress the following result. If the knowledge externality is large compared to the legal externality, decreasing the patentability standards leads to fewer disclosures and may hinder R&D. We also determine the impact of changes in market payoffs on the equilibrium level of disclosures and R&D

The Role-Based Performance Scale: Validity Analysis of a Theory-Based Measure

This study introduces a theory-based measure of employee performance (Role Based Performance Scale, RBPS) that is supported with results from a validation study using 10 data sets from six companies. In contrast to traditional, job-related measures of employee performance, we propose an alternative measure of performance based on role theory and identity theory. Because our results support the validity of the scale, we think that the instrument can be used for future research that requires a generalizable measure of performance. The scale demonstrates diagnostic properties that make it useful for practitioners as well as researchers

License Auctions with Royalty Contracts for Losers

This paper revisits the standard analysis of licensing a cost reducing innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines elements of a license auction with royalty licensing by granting the losers of the auction the option to sign a royalty contract. The optimal new mechanism eliminates the losses from exclusionary licensing without reducing bidders’ surplus; therefore, it is more profitable than both standard license auctions and pure royalty licensing. We also take into account that the number of licenses must be an integer, which is typically ignored in the literature