Managing New Technology Using Malleable Profit Functions

Richard Arend, Moren Levesque, Maria Minniti

Research output: Contribution to journalArticle

Abstract

Technological innovation drives economic growth, and the pioneering activity of scientists and engineers produce technological innovation. We provide a mathematical model of pioneering strategic choice by adopting a perspective familiar to microeconomics, but less common in the engineering management literature. Instead of focusing on the specific features of a pioneer's technology, we focus on the malleability of the profit equation involved. By considering the arguments of the profit function (i.e., entry and variable costs and potential market demand) as strategic levers, we derive propositions that identify the ranges of actions (lever pulling) available to managers to protect (and even increase) entrepreneurial rents in a simple yet robust partial equilibrium case. For each lever, we show that there are several value ranges (intervals) and that the pioneer's incentives vary across these intervals. In addition, for each lever, we identify the existence of nontrivial profit discontinuities that change the pioneer's incentives in surprising ways and lead to counterintuitive strategic choices. Lastly, we show that for some range of each lever's values, welfare-improving transfer payments are possible and, therefore, pioneers and policy-makers both have an incentive to bargain. As in the case of patents, these transfers encourage the introduction of new technologies.

Original languageEnglish (US)
Article number7872400
Pages (from-to)120-133
Number of pages14
JournalIEEE Transactions on Engineering Management
Volume64
Issue number2
DOIs
StatePublished - May 2017

Keywords

  • Cournot competition
  • management of innovation
  • mathematical model
  • pioneering
  • strategic choice

ASJC Scopus subject areas

  • Strategy and Management
  • Electrical and Electronic Engineering

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