1. Lecture Slides Rui Baptista
Microeconomics and Corporate Analysis Notes on The Economics of Technology
Lecture Slides
Rui Baptista

2. Schumpeter’s Theory of Innovation
Innovation incessantly revolutionises the economic structure through a process of creative destruction
The entrepreneur is defined as the single responsible for innovation, that is, for the economic use of new scientific knowledge
Innovation is incremental and cumulative

3. Schumpeterian Hypotheses
There is a positive relationship between innovation and monopoly power and profit
Large firms are more than proportionately more innovative than small firms

4. Demand-Pull vs. Technology-Push
Innovations originate in the firm’s production and marketing departments
The pace of innovation (and product life-cycles) is determined by market opportunities
Technology-Push
Innovations originate in the firm’s research staff
The pace of innovation (and of product life-cycles) is determined by the scientific base

5. Key Dimensions of Innovative Activity
Uncertainty: associated with whether and when R&D will generate new technology and with the impact of the innovation - cost structures, market demand, rival reaction
Appropriability: how far can the firm internalise the returns from innovating, and how fast will rapid imitation reduce those returns
Timing: learning and development costs, associated with uncertainty, might confer an advantage to later adopters or, at least, to “fast-seconds”

6. The Incentive to Innovate: Arrow’s Conclusions
Non-competitive markets will be less innovative than competitive ones
A social optimum can only be achieved when no price is charged for innovations

7. The Incentive to Innovate

8. The Pace of Development and the Timing of Innovation
How is the optimal pace of innovation affected by the competitive environment in which firms act?
Do monopolistic and oligopolistic industries innovate more rapidly than competitive ones, and how do they compare to what is socially optimal?

9. Timing of Innovation

10. Patent Races
The larger the expected profit from introduction, the greater the probability of innovating first
The smaller the profit from the present product/technology, the greater the probability of innovating first
The larger the difference between present and expected profits (after introduction), the greater the loss from being beaten to the market

11. Technological Knowledge as a Public Good
Non-rivalry: the cost of replicating new technology is usually trivial when compared with the cost of creating it in the first place
Incomplete Excludability: property rights can be assigned by law to the creators of new ideas; however, technology determines how easy it is to prevent unauthorised use

12. Technological Opportunity and Spillovers
Spillovers occur whenever a firm shares knowledge with other bodies performing R&D, without having to pay for that information in a market transaction
The technological opportunity of each firm is the “pool of knowledge” available in the environment for the firm to draw upon
The various sources of knowledge spillovers make for a technological infrastructure that supports innovative activity and economic growth

13. A Model of Patent Protection

14. Technology and Network Externalities

15. Market Evolution under Network Externalities