Economics of Innovation and Intellectual Property
Exam Questions & Answers
KU Leuven
2020-2021
, Lecture 1 & 2: Market structure and innovation
What do we mean with invention, innovation, and diffusion?
An invention is the result of a generation of ideas by chance or by systematic research
An invention (knowledge) turns into an innovation when it becomes an economical useful
good; it’s the result of the development of an invention.
Diffusion is the process through which innovation becomes used by others; source of societal
welfare.
What do we mean with basic research, applied research, and development?
In basic research, one aims to gain understanding of a phenomenon or improve scientific
theories; emphasis on the why-question
In applied research, one tries to solve a specific problem or provide innovative solutions to
issues affecting an individual, group or society; emphasis on the how-question
In development research, one uses collected knowledge in the making of new products or
services
Describe the main stages of the innovation process.
1. Idea generation and mobilization: new ideas are created during idea generations and are
moved to a different logical or physical location when mobilization occurs.
2. Advocacy and screening: to evaluate the feasibility of a business idea with its potential
problems and benefits.
3. Experimentation: to test the sustainability of ideas for an organization.
4. Commercialization: to develop market value for an idea by focusing on its impact
5. Diffusion and implementation: diffusion is the company-wide acceptance of an innovative
idea and implementation sets up everything needed to develop the innovation
Describe the different ways in which innovation can affect firms and their economic
performance.
Product innovation leads to an increase demand and even new market entries which leads
to higher revenues.
Process innovations can reduce the costs of production and increase the quality of the
products
Marketing innovations can lead to better designs, campaigns, packages, … which leads to
higher demand and higher revenue
Organization innovations can lead to improvements in the supply chain, knowledge
management, … which leads to cost reductions.
What are the economic characteristics of knowledge?
Knowledge is scientific evidence or experience that can be codified (chemical formula,
computer algorithm) or tacit (embodied in individuals, human capital certain skills)
Which market failures give an advantage to large firms?
Externalities: easier for large firms to exploit discoveries
Indivisibilities: possibility to exploit economies of scope and scale
Uncertainty: more resources to cope with risk
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