Technological Environment, Market Structure and Investment in Technological Change

Abstract

Technical knowhow is a peculiar sort of product in so far as it is often intangible, expensive to produce but relatively cheap to reproduce. From a welfare point of view, the free exchange of information is associated with important benefits. Perfect knowledge allows the economy to achieve the highest possible levels of technical and allocative efficiency with any given stock of knowledge. At the same time, however, the free exchange of information and the existence of rapid imitation seem to be characteristics of an environment particularly unsuited to a rapid growth in the stock of knowledge. Inevitably the real world has sought a compromise by offering legal protection of limited duration for advances in technical knowledge. Both patents and designs attempt to afford property rights to bona fide inventors under UK law and this type of protection is extended outside of technical areas by trademarks and copyrights. The existence of property rights of this kind means that the firm has to decide whether to finance research and development (R and D) or whether to ‘buy in’ new technology which is the end product of other firms’ R and D programmes.