Lecture summaries - Capture Value from Innovation
Lecture 1: Introduction to Value Appropriation: Formal and Informal Protection
Mechanisms
This lecture discusses the requirements of the assignment and the course details. This lecture also
elaborates upon the concept of ‘value appropriation’, which refers to a company’s ability to reap (financial)
benefits from its innovations. Companies can employ appropriability mechanisms to benefit from their
innovations horizontally (against competitors: ‘value protection’) and vertically (against suppliers and
buyers: ‘value capture’); we discuss the effectiveness of a variety of formal (e.g., patents, copyright) and
informal (secrecy, market lead time) appropriability mechanisms.
Mandatory Literature:
● James, S. D., Leiblein, M. J., Lu, S. (2013), “How Firms Capture Value from their Innovations,”
Journal of Management, 39(5): 1123–1155.
● Miric, M., Boudreau, K. J., & Jeppesen, L. B. (2019). Protecting their digital assets: The use of
formal & informal appropriability strategies by App developers. Research Policy, 48(8), 103738.
● Schilling, M. (2010), Strategic Management of Technological Innovation, New York: McGraw-Hill,
3rd Ed., Chapter 9: 183–208.
Example of pharmaceutical acquisitions: M&A deals are increasing within and across industries. The
question is why we see this development, especially across big companies acquiring smaller companies,
What are motives for large companies to acquire smaller ones, vice versa? (innovation-related)
● Strong capabilities of smaller companies - more innovation (start-ups)
● Strong capabilities from being big - commercialization, financial assets, distribution channels
● Creating vs Commercializing Innovation
Value Creation and Appropriation
Course focus: horizontal competition - commercialization stage
It's about protecting and reaping benefits from innovation. How to defend against competition: don't focus on
supply chain value chain.
, ● Value creation: the ability of innovators to create value with their innovations to
stakeholders
● Value appropriation: the ability of innovators to capture and protect the value of their
innovations
› To learn how firms can capture and protect value from
their innovations: appropriability
› To learn about the effectiveness of both formal (legal) and informal mechanisms to capture
and protect value
Content/Refresher
A. Definitions of innovation and intellectual property rights (IPR)
(a) Disruption
(b) Something new
Innovation: something new (for who?)
A firm that introduces something that is new to the industry/market. (Course focuses on
industry inventors).
(a) Innovation: when no identical or similar products have been introduced at an earlier
date by other firms operating in the same industry.
(b) Imitation: when competitors copy the innovator (without consent), even though it is
something new for them.
Why is it relevant to focus on innovators? How to protect this novelty?
Because it's actually novel, it's core to the theories they teach. Our theories don't apply to imitators (some may
when looking to win the race) but we look at the innovator perspective of how to get value from our innovation.
Diffusion
Diffusion: the adoption of an innovation...
› by buyers: buyer diffusion (early adopters vs later adopters)
› by competitors: seller diffusion (prevention of this type of innovator, innovator wants to reap
capture; however in some scenarios diffusion is good to create dominant design,
complementary assets, etc). Seller diffusion is more relevant for new markets = create user
base.
May be initiated and stimulated by the innovator (dissemination)
May be deterred or prevented by the innovator (prevention of imitation)
,There are different perks from late adopter, early adopter, etc. a lot of things taught is how to
prevent seller diffusion. There may be times when we want dissemination, and the innovator
wants to stimulate seller diffusion. This is when we want to increase adoption by the industry. It could
be that I want to establish my tech as a dominant design, and to have other advantages like
complementary assets to my DD to my tech. Could be other reasons which relate to this.
Would it be more relevant for mature markets or new markets? tesla vs volkswagen.
If we have a new comp in the market. Why make it open?? People new in the market, can you help
you establish yourself in the market? If it's a very new tech, we don't have a lot of consumers willing
to adapt. Need to get other competition in the market to get the tech more adopted and the
knowledge shared for users to be willing to use the new tech. - Network effects.
When is dissemination likely/good?
Market with network positive
externalities - value increases as number
of users does. Push market to become
virtuous circle where NE are self-reinforcing
(positive for innovation).
Network effects (network externalities)
exist for good A if each user’s utility from A
increases with the total number of users of
A. (A can also mean a group of mutually
substitutable goods.)
Direct and indirect network effects
2 types of NE:
● direct: direct connections between users, no demand and supply side; example: of
network effect on languages where a lot of people speak english you have a larger benefit
in learning this vs dutch. value of other users speaking the same language, using the
same phone. Example: social media, whatsapp users connect with each other. more
users: more attractive.
● Indirect: cross-sided network demand and supply sides, attracted to offers that are
widely accepted;
, Direct & Indirect network effects! Utility increases with more adopters & users
Strategy: “Increase the pie, then share the pie”
Examples: fashion, fax, CD/DVD/Blu ray player, eBay,Facebook, Uber, Operating Systems, Video
game
Easier to attain legitimacy & produce next line products,but danger for society of premature
lock-in to inferior system standards
B. Types of Imitation:
- from counterfeit to following a trend
Value Protection: Imitation Continuum
● Examples of counterfeit imitation - “easy” to identify unlawful innovation. So it
is easier to protect from exact copies, if we have specific patents.
● Examples of products inspired by (...) - difficult to identify/ to protect and
innovation - both when is a completely different solution or inspired by.
Completely different solution to the same problem. Is this an imitation of an innovation or not?
Some industries where it's easy to identify unlawful imitation?
(a) Pharmaceutical: ease to identify due to the level of patenting as a formula, which you
can codify and protect (high patent propensity)
(b) Semiconductors/Programming: hard to identify due to the complexity of industry
components and also how this is protected, non-discrete. For manufacturing industries
you can invent around the patent and that is hard to protect.
(c) Geographical differences account for patent effectiveness!
When firms invent around the patent it is hard to protect!
Lecture 1: Introduction to Value Appropriation: Formal and Informal Protection
Mechanisms
This lecture discusses the requirements of the assignment and the course details. This lecture also
elaborates upon the concept of ‘value appropriation’, which refers to a company’s ability to reap (financial)
benefits from its innovations. Companies can employ appropriability mechanisms to benefit from their
innovations horizontally (against competitors: ‘value protection’) and vertically (against suppliers and
buyers: ‘value capture’); we discuss the effectiveness of a variety of formal (e.g., patents, copyright) and
informal (secrecy, market lead time) appropriability mechanisms.
Mandatory Literature:
● James, S. D., Leiblein, M. J., Lu, S. (2013), “How Firms Capture Value from their Innovations,”
Journal of Management, 39(5): 1123–1155.
● Miric, M., Boudreau, K. J., & Jeppesen, L. B. (2019). Protecting their digital assets: The use of
formal & informal appropriability strategies by App developers. Research Policy, 48(8), 103738.
● Schilling, M. (2010), Strategic Management of Technological Innovation, New York: McGraw-Hill,
3rd Ed., Chapter 9: 183–208.
Example of pharmaceutical acquisitions: M&A deals are increasing within and across industries. The
question is why we see this development, especially across big companies acquiring smaller companies,
What are motives for large companies to acquire smaller ones, vice versa? (innovation-related)
● Strong capabilities of smaller companies - more innovation (start-ups)
● Strong capabilities from being big - commercialization, financial assets, distribution channels
● Creating vs Commercializing Innovation
Value Creation and Appropriation
Course focus: horizontal competition - commercialization stage
It's about protecting and reaping benefits from innovation. How to defend against competition: don't focus on
supply chain value chain.
, ● Value creation: the ability of innovators to create value with their innovations to
stakeholders
● Value appropriation: the ability of innovators to capture and protect the value of their
innovations
› To learn how firms can capture and protect value from
their innovations: appropriability
› To learn about the effectiveness of both formal (legal) and informal mechanisms to capture
and protect value
Content/Refresher
A. Definitions of innovation and intellectual property rights (IPR)
(a) Disruption
(b) Something new
Innovation: something new (for who?)
A firm that introduces something that is new to the industry/market. (Course focuses on
industry inventors).
(a) Innovation: when no identical or similar products have been introduced at an earlier
date by other firms operating in the same industry.
(b) Imitation: when competitors copy the innovator (without consent), even though it is
something new for them.
Why is it relevant to focus on innovators? How to protect this novelty?
Because it's actually novel, it's core to the theories they teach. Our theories don't apply to imitators (some may
when looking to win the race) but we look at the innovator perspective of how to get value from our innovation.
Diffusion
Diffusion: the adoption of an innovation...
› by buyers: buyer diffusion (early adopters vs later adopters)
› by competitors: seller diffusion (prevention of this type of innovator, innovator wants to reap
capture; however in some scenarios diffusion is good to create dominant design,
complementary assets, etc). Seller diffusion is more relevant for new markets = create user
base.
May be initiated and stimulated by the innovator (dissemination)
May be deterred or prevented by the innovator (prevention of imitation)
,There are different perks from late adopter, early adopter, etc. a lot of things taught is how to
prevent seller diffusion. There may be times when we want dissemination, and the innovator
wants to stimulate seller diffusion. This is when we want to increase adoption by the industry. It could
be that I want to establish my tech as a dominant design, and to have other advantages like
complementary assets to my DD to my tech. Could be other reasons which relate to this.
Would it be more relevant for mature markets or new markets? tesla vs volkswagen.
If we have a new comp in the market. Why make it open?? People new in the market, can you help
you establish yourself in the market? If it's a very new tech, we don't have a lot of consumers willing
to adapt. Need to get other competition in the market to get the tech more adopted and the
knowledge shared for users to be willing to use the new tech. - Network effects.
When is dissemination likely/good?
Market with network positive
externalities - value increases as number
of users does. Push market to become
virtuous circle where NE are self-reinforcing
(positive for innovation).
Network effects (network externalities)
exist for good A if each user’s utility from A
increases with the total number of users of
A. (A can also mean a group of mutually
substitutable goods.)
Direct and indirect network effects
2 types of NE:
● direct: direct connections between users, no demand and supply side; example: of
network effect on languages where a lot of people speak english you have a larger benefit
in learning this vs dutch. value of other users speaking the same language, using the
same phone. Example: social media, whatsapp users connect with each other. more
users: more attractive.
● Indirect: cross-sided network demand and supply sides, attracted to offers that are
widely accepted;
, Direct & Indirect network effects! Utility increases with more adopters & users
Strategy: “Increase the pie, then share the pie”
Examples: fashion, fax, CD/DVD/Blu ray player, eBay,Facebook, Uber, Operating Systems, Video
game
Easier to attain legitimacy & produce next line products,but danger for society of premature
lock-in to inferior system standards
B. Types of Imitation:
- from counterfeit to following a trend
Value Protection: Imitation Continuum
● Examples of counterfeit imitation - “easy” to identify unlawful innovation. So it
is easier to protect from exact copies, if we have specific patents.
● Examples of products inspired by (...) - difficult to identify/ to protect and
innovation - both when is a completely different solution or inspired by.
Completely different solution to the same problem. Is this an imitation of an innovation or not?
Some industries where it's easy to identify unlawful imitation?
(a) Pharmaceutical: ease to identify due to the level of patenting as a formula, which you
can codify and protect (high patent propensity)
(b) Semiconductors/Programming: hard to identify due to the complexity of industry
components and also how this is protected, non-discrete. For manufacturing industries
you can invent around the patent and that is hard to protect.
(c) Geographical differences account for patent effectiveness!
When firms invent around the patent it is hard to protect!
