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Small Business Economics

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01.08.2009

Defending against rival innovation

verfasst von: Richard J. Arend

Erschienen in: Small Business Economics | Ausgabe 2/2009

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Abstract

We analyze how an incumbent defends its competitive advantage with a focus on the under-examined methods of actively defending against the threats posed by rival innovation. We describe, delineate and analyze the set of such defenses and their likely effects. The set of such defenses differs substantially from many standard defenses, such as those aimed at defeating the threat of imitation. The further study of these pre-emptive innovation defenses is important because these defenses are different and because they can substantially affect the sustainability of firm profits and the pace of different of types of innovation.

Vorheriger Artikel Internationalisation of technology-oriented firms in Germany and the UK

Nächster Artikel Absorptive capacity and R&D tax policy: Are in-house and external contract R&D substitutes or complements?

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We advocate only legal ways of preventing threatening rival innovations. Such approaches must be adjusted, in practice, to the legal and ethical standards of the organization and context involved. Regardless, it is important to acknowledge the spectrum of possible defenses, many of which have been used, whether legal or not. As with any competitive situation and especially one with significant societal impact, such issues—legal and ethical—arise, but are left for future work in those literatures most relevant to those specific issues.

There are opportunities that increase the consumable utility, and there are opportunities that decrease the costs of production. The first category may arise due to changes in what can and could generate utility, and in the level of utility generated by existing goods. Opportunities in the latter category may arise due to changes in production technologies—technical, organizational, and inter-organizational—as well as changes in related regulations.

For bargaining outside the rival venture, opportunities may arise due to changes in the supply and demand of external complementary assets (Teece 1986), in the underlying added value of external complementary assets, and in the relative value of their substitutes. For bargaining inside the rival venture, opportunities may arise due to changes in labor laws, compensation methods, monitoring costs, individual productivity technology, labor supply and demand, and labor substitution.

Increasing the control of the market supply can be done either directly or indirectly. Opportunities for direct influence include applying new knowledge to strengthen market power and to facilitate collusion. Such knowledge may be in the form of regulatory changes affecting anti-competitive behavior and cooperative behavior, in the form of new ways to signal, monitor, and punish competitors, and in the form of new ways to raise entry barriers and lower exit barriers.

We can break out the potential profits from the potential realizable profits in order to proceed in stages instead. If the potential value is high, however, then it may be worthwhile to estimate how much of the potential value the rival is likely to appropriate and how well it will be able to defend its advantage from imitation by other rivals. If appropriation and defendable advantage are low then the threat is low; if not, then the incumbent firm will require defenses.

We note that defense strategies will more likely be those the incumbent can measure and legally pursue. Future work may consider the morality and social good of using any specific defensive tactic.

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Titel: Defending against rival innovation
verfasst von: Richard J. Arend
Publikationsdatum: 01.08.2009
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 2/2009
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-008-9097-y

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