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Economic issues concerning the mobility of scientific inventions and implications for firm strategy Agrawal, Ajay K.

Abstract

It is well recognized that there are imperfections in the market for knowledge transfer due to the nature of ideas and inventions. This is consistent with market failures commonly discussed in the economics of information literature. Some of the impediments to efficiency axe examined here in three essays—one empirical, one theoretical, and one case study—all of which share the theme of scientific knowledge movement. The first essay is empirical and measures the systematic effects of direct interaction and geographic distance between university and firm scientists on the economic performance of imported inventions. This study concludes that, with respect to licensing royalties, scientific interaction has an elasticity of approximately 3 at the mean, which is highly robust, and that distance does not have a significant effect after controlling for interaction. This suggests imperfections in the market for know-how that are sensitive to distance. The second essay is a case study of an invention from the area of robotics and control systems and augments the empirical work presented in the previous essay by illustrating specific reasons why interaction was important for the commercialization of one particular early stage invention. The third essay develops a game theoretic model involving the strategic manipulation of incentives by an incumbent to create an 'intellectual property commons' for the purpose of preventing the commercial development of a disruptive technology that would otherwise threaten existing industry margins. The strategy of spoiling incentives to commercialize public sector scientific inventions by eliminating exclusive intellectual property rights—the strategy of the commons—is motivated by a fear of cannibalization and supported by a credible threat. It is shown that the degree of cannibalization to which the new technology exposes the old market is responsible for this market failure.

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