Abstract
With a single innovating firm facing only technological uncertainty, piracy unambiguously retards innovation. However, with R&D competition where firms face both market and technological uncertainties, we show that if the two firms differ “significantly” with respect to the efficiency in R&D investment, then piracy increases the R&D investment of the less efficient firm and reduces that of the more efficient firm. In this case piracy enhances the overall probability of a successful innovation.
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