Economics Ch 11w

fast-second strategy

Dominant firm waits out smaller competition to create a new product (thus letting them incur the high costs) and then creates a similar product but improves it to become no.1

inverted-U theory of R&D

R&D expenditures (other things equal) as a percentage of sales ^with industry concentration, reach a peak at a four firm concentration ratio of a bout 50 %, and then fall as the ratio further increases.

optimal amount of R&D

The level of R&D at which the MARGINAL BENEFIT and MARGINAL COST of R&D expenditures are EQUAL

expected-rate-of-return curve

a curve showing the anticipated gain in profit, as a percentage of R&D expenditure, from an additional dollar spent on R&D

interest-rate cost-of-fund curve

a curve showing the interest rate the firm must pay to obtain any particular amount of funds to finance R&D.

patent

an exclusive right to sell any new and useful process, machine, or product for a set period of time.

venture capital

financial capital, simply money, not real capital. Consists of that part of the household saving used to finance high-risk business ventures in exchange for shares of the profit if the ventures succeed.

creative destruction

hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies.

technological advance

new and better goods and services or new and better way of producing or distributing them

process innovation

new and improved methods of production or distribution

product innovation

new and improved products or services

very long run

period in which technology can change and in which firms can develop and offer entirely new products.

start-ups

small new companies formed by entrepreneurs that focus on creating and introducing a new product or employing a new production or distribution technique.

diffusion

spread of an innovation to other products or processes through imitation or copying.

invention

the discovery of a product or process through the use of imagination, ingenious thinking, and experimentation and the first proof that it will work.

innovation

the first sucessful commercial introduction of a new method, or the creation of a new form of business enterprise.

imitation problem

the potential for a firm's rivals to produce a close variation of a firm's new product or process, greatly reducing the originator's profit from R&D and innovation.