Chapter 15: Technology, R&D, & Efficiency ppt
technological advance based on pure competition
-has a reason to innovate -expected rate of return on R&D is low/negative so easy entry -R&D attributed to industry vs individual firm
optimal amount of R&D
-marginal benefits = marginal cost -interest rate of return intersects expected rate of return -expected rate of return > cost of financing -no guaranteed profits -if expected rate of return changes must adjust R&D spending
technological advance based on oligopoly
-size allows for promoting technological process -spread cost on innovation over large scale operations -less incentive to introduce new tech & products since they can earn larges profits without it
technological advance based on monopolistic competition
-strong profit allowing promotion of technological progress -limited ability to obtain inexpensive R&D with small market share -low barriers so is difficult to extract large profits
advantages of being an innovation leader (7)
1. patents limit imitation & protect profits over time 2. copyrights & trademarks reduce direct copying & increase incentives for product innovation 3. trademark protection & brand name recognition provide marketing advantage 4. trade secrets may prevent imitation 5. learning by doing may give firms production advantages 6. time lags between innovation & diffusion giving them time to make economic profits 7. profitable buyout
entrepreneurs
an initiator, innovator, and risk-bearer
creative destruction
creation of new products & production methods can simultaneously destroy the monopoly position of firm's existing products & methods of production
technological advance
development of new and improved products & ways of producing & distributing the products
fast-second strategy
dominant firm quickly imitates successful new product of smaller companies
start-ups
entrepreneurs who form small new companies that create & introduce new products or production technique
optimal industry structure for R&D
expect high returns on R&D spending with funds readily available & inexpensive to finance
innovation
first successful commercial use of a new product or method or the creation of a new form of business that can enable a firm to leapfrog competition by making their products or methods obsolete
patent
government grants inventors the exclusive right to sell a product
spin-offs
innovators found within existing companies -EX. R&D by splitting off units to form new, more flexible & innovative firms
R&D
internal capitalism & includes work & expenditures directed toward invention, innovation, and diffusion -gov supports with defense expenditures & funding -universities support by researching
intrapreneurs
key people involved in innovation but don't bear personal financial risk -EX. scientists & key executives
technological advance based on pure monopoly
little incentive to engage in R&D since profit is protected by barriers to entry
consumer acceptance of product innovation depends on
marginal utility and price
process innovation (productive efficiency)
new or improved production or distribution methods by increasing productivity of inputs & reducing ATC -increases total product at each level of resource usage
product innovation (allocative efficiency)
new or improved products or services
profitable buyout
purchase of an innovating firm by larger firm at high cost
venture capital
sources available to finance a firm's R&D -EX. bank loans, bonds, retained earnings, personal savings
diffusion
spread of an innovation through imitation or copying by a firm to profit from new opportunities or to protect profits
inverted u theory of R&D
suggests R&D effort is weak in industries with very low (pure competition) and very high (pure monopoly) concentration
invention
the discovery of products or process
