From Thought to Practice: Appropriation and Endogenous Market Structure with Imperfect Intellectual Property Rights

51 Pages Posted: 4 Jun 2009

See all articles by Mariagiovanna Baccara

Mariagiovanna Baccara

Washington University in St. Louis

Ronny Razin

London School of Economics & Political Science (LSE)

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Date Written: November 2003

Abstract

We address the problem faced by innovators who have an idea for a marketable product but must hire employees to bring the product to the market. However, newly hired employees learn the idea and may attempt to bring the product to the market themselves. We develop a bargaining model that accounts for the problem of information leakage. In this model, employees' rents endogenously reflect the bargaining power vis-a-vis the firm which is due to the knowledge of the information. The model has a unique symmetric equilibrium in which the innovator appropriates a sizable share of the surplus despite the absence of property rights for ideas. We show that this share stays bounded away from zero even as the number of agents required in the development grows to infinity. We also derive the conditions under which monopoly or competition arise on the product market. We find that when the degree of potential competition on the product market is high enough, a monopoly is generated by hiring all potential competitors within the same firm. Finally, the link between intellectual property rights enforcement and industry performance is explored, and normative implications are derived.

Keywords: bargaining, information leakage, intellectual property

JEL Classification: D2, L2

Suggested Citation

Baccara, Mariagiovanna and Razin, Ronny, From Thought to Practice: Appropriation and Endogenous Market Structure with Imperfect Intellectual Property Rights (November 2003). Available at SSRN: https://ssrn.com/abstract=531122 or http://dx.doi.org/10.2139/ssrn.531122

Mariagiovanna Baccara (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Ronny Razin

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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