IP LECTURE 1

Which of these statements are true?

Inventions usually but not allways turn into innovations

From a macroeconomic perspective, innivation drives growth by allowing more output to be generated from the same number of inputs

Diffusion is the process through which innovations become used by others.

Most countries spend too little on R&D.

The business sector, higher education sector, and the government sector all invest in R&D. How do the three sectors typically rank in terms of investment volume?

Firms > Higher Education > Government

What are the stages of the innovation process? (minuscula y sin comas)

invention innovation commercialization diffusion

What does the concept of incomplete appropiability refer to?

It is difficult to exclude others from exploiting ideas

Why do economists study technological progress?

Because it is the largest determinant of economic growth (note that economic growth is an exception, from 1820)

R&D investing represent a large share of GDP -> 3% target UE

What do we mean with invention, innovation, and diffusion?

Invention: idea that comes up by chance or after a process of research

Innovation: invention transformed into an economically useful good -> satisfies a necessity/demand

Difussion: the process of an innovation getting adopted by others (third parties wrt the innovator) -> source of social welfare

What do we mean with basic research, applied research, and development?

Basic research is done to gain understanfing, does not have a practical purpose.

Applied research is meant to find a solution for a specific problem

Development is the process of turning knowledge into a new product or process

Describe the different ways in which innovation can affect firms and their economic performance.

process innovations -> cost reduction
product innovation -> new product

Which market failures give an advantage to large firms?

Externalities -> larger firms who offer a greater variety of products can benefit more from new discoveries

Indivisibilities -> some innovations require large fixed investments. Large firms have more resources to exploit economies of scale and scope.

Uncertainity -> investment in innovation is more risky, so it is more difficult to get financing resources for it. Larger firms tend to be less credit constrainted because they have more internal funds and greater creditworthiness

What is the difference between a drastic and a non-drastic process innovation?

The drastic alters the market structure because lowers the firm's marginal cost so much that the new monopoly price is lower than the current competitive price, so the firm becomes a monopolist

Describe the relation between competition and innovation in a setting where n firms compete on output and innovations are attainable with certainty.

Firms will innovate according to the PI

In a n-firm oligopoly:

PI(n+1)-PI(n)= [(2n^2+4n+1)PSY-2(n^2+n+1)/(n+2)^2(n+1)^2]PSY(a-c0)^2

There is a quadratic relationship: there is a threshold for n that gives the maximum profit incentives for innovation

Why is there an inversed-U-shaped relation between competition and innovation?

In a n-firm cournot oligopoly setting, a firm will have incentives to innovate from c0 to c1 if it has profit incentives to do so.

Profits for firm i -> [(a-nci+(n-1)cj)/(n+1)]^2

PI to innovate -> [n/(n+1)^2](2+nPSY)PSY(a-c0)^2

So there is a negative quadratic relation between PSY and n

Describe the innovation process

Research and development:
Firms or external initiatives conduct basic research that leads to discoveries and ideas.
Firms conduct applied reasearch to turn those ideas into inventions, and after development and testing they create prototypes-

Comercialization:
Firms invest to create an innovation out of those prototypes, that can be a product or a process.

Difussion:
Market agents decide to purchase or adopt the innovation, so it penetrates in the market. Improvements can surge, that can lead to new innovations.