Endogenous Appropriability
Innovation’s private value is typically less than its social value, so to encourage innova- tion, researchers in economics and strategy have focused on how innovators can appropri- ate value across different economic, institu- tional, and strategic environments...
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| Format: | Article |
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American Economic Association
2019
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| Online Access: | http://hdl.handle.net/1721.1/121075 https://orcid.org/0000-0003-2328-3229 |
| _version_ | 1826210974976180224 |
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| author | Gans, Joshua Samuel Stern, Scott |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Gans, Joshua Samuel Stern, Scott |
| author_sort | Gans, Joshua Samuel |
| collection | MIT |
| description | Innovation’s private value is typically less than its social value, so to encourage innova- tion, researchers in economics and strategy have focused on how innovators can appropri- ate value across different economic, institu- tional, and strategic environments ( Teece 1986; Gans and Stern 2003 ) . For sta rt-ups without pre-existing assets such as manufacturing capa- bilities or brand reputation, researchers have identified appropriability through formal intel- lectual property protection ( which we will refer to as a “control” approach ) and first-mover com- petitive advantage ( which we will refer to as an “execution” approach ) as distinct paths. Most research has taken a start-up’s appro- priability regime as exogenous, i.e., environ- mentally determined ( e.g., control-orientation in biotechnology, and execution-orientation in Internet software ) . This paper develops a simple model highlighting the interplay between con- trol and execution as alternative routes to appro- priability. Whereas a control strategy allows an innovator to forestall imitation once established, control itself takes time, and so can delay market entry. In contrast, an execution strategy is pre- mised on taking advantage of the benefits aris- ing from rapid market entry such as customer learning, reputational advantages, or coordina- tion on a standard. Does the start-up shield itself from competition through investing in entry barriers or does it invest in dynamic capabilities allowing it to “get ahead, stay ahead”? We derive two main results. First, the choices of control and execution are strategic substi- tutes. Notably, when the ability to learn from early customer feedback in the marketplace is sufficiently high, an entrepreneur might choose not to invest in intellectual property protection even if such protection is costless and effective. Second, the choice between control and execu- tion interacts with other key strategic choices such as whether to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” versus a more robust version. Innovation appropriability depends not only on the instruments available to an innova- tor, but on how those instruments interact with each other as part of the firm’s ( endogenous ) entrepreneurial strategy (see Ching, Gans, and Stern 2016; Gans, Stern, and Wu 2016 ). |
| first_indexed | 2024-09-23T14:58:25Z |
| format | Article |
| id | mit-1721.1/121075 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T14:58:25Z |
| publishDate | 2019 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/1210752022-09-29T11:48:42Z Endogenous Appropriability Gans, Joshua Samuel Stern, Scott Sloan School of Management Gans, Joshua Samuel Stern, Scott Innovation’s private value is typically less than its social value, so to encourage innova- tion, researchers in economics and strategy have focused on how innovators can appropri- ate value across different economic, institu- tional, and strategic environments ( Teece 1986; Gans and Stern 2003 ) . For sta rt-ups without pre-existing assets such as manufacturing capa- bilities or brand reputation, researchers have identified appropriability through formal intel- lectual property protection ( which we will refer to as a “control” approach ) and first-mover com- petitive advantage ( which we will refer to as an “execution” approach ) as distinct paths. Most research has taken a start-up’s appro- priability regime as exogenous, i.e., environ- mentally determined ( e.g., control-orientation in biotechnology, and execution-orientation in Internet software ) . This paper develops a simple model highlighting the interplay between con- trol and execution as alternative routes to appro- priability. Whereas a control strategy allows an innovator to forestall imitation once established, control itself takes time, and so can delay market entry. In contrast, an execution strategy is pre- mised on taking advantage of the benefits aris- ing from rapid market entry such as customer learning, reputational advantages, or coordina- tion on a standard. Does the start-up shield itself from competition through investing in entry barriers or does it invest in dynamic capabilities allowing it to “get ahead, stay ahead”? We derive two main results. First, the choices of control and execution are strategic substi- tutes. Notably, when the ability to learn from early customer feedback in the marketplace is sufficiently high, an entrepreneur might choose not to invest in intellectual property protection even if such protection is costless and effective. Second, the choice between control and execu- tion interacts with other key strategic choices such as whether to pursue a narrow or broad customer segment, or whether to commercialize a “minimal viable product” versus a more robust version. Innovation appropriability depends not only on the instruments available to an innova- tor, but on how those instruments interact with each other as part of the firm’s ( endogenous ) entrepreneurial strategy (see Ching, Gans, and Stern 2016; Gans, Stern, and Wu 2016 ). 2019-03-25T15:04:01Z 2019-03-25T15:04:01Z 2017-05 2019-02-28T19:06:58Z Article http://purl.org/eprint/type/JournalArticle 0002-8282 http://hdl.handle.net/1721.1/121075 Gans, Joshua S., and Scott Stern. “Endogenous Appropriability.” American Economic Review 107, no. 5 (May 2017): 317–321. https://orcid.org/0000-0003-2328-3229 http://dx.doi.org/10.1257/AER.P20171011 American Economic Review Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Gans, Joshua Samuel Stern, Scott Endogenous Appropriability |
| title | Endogenous Appropriability |
| title_full | Endogenous Appropriability |
| title_fullStr | Endogenous Appropriability |
| title_full_unstemmed | Endogenous Appropriability |
| title_short | Endogenous Appropriability |
| title_sort | endogenous appropriability |
| url | http://hdl.handle.net/1721.1/121075 https://orcid.org/0000-0003-2328-3229 |
| work_keys_str_mv | AT gansjoshuasamuel endogenousappropriability AT sternscott endogenousappropriability |