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Market For R&D Failures Essay

3313 words - 14 pages

Mike Rondesko, KaChun Fung, Daniel Lozano, Jose Romero
Professor Pe’er
Final Essay
18 December 2012

Market for Trading R&D failures

Advancing ones knowledge based on past failures is vital towards furthering intellectual development. Without understanding as to why something doesn’t work, it would be very unlikely that an efficient goal can be reached. This same concept applies to research and development projects in the modern day industry. Using the knowledge of recent failures is what drives progress and technological advancements. However, discovering failures is insensitive to time, resources, and capital in an ever changing world of product innovation. If knowledge of ...view middle of the document...

This aspect of the market would create the incentive for a firm “to deceive its rival” (Shalem 15). Because of the current lack of transparency in research and development, inaccurate information would be extremely difficult to decipher. Nonetheless, a truthful exchange of knowledge would certainly possess value for both parties.
A market that traded R&D failures would have unique characteristics. Because knowledge is an intangible asset it would be quite difficult to place a value on it. Firms would have to determine its value by recording the costs that were incurred through the time it took in reaching innovation. The intellectual property can then be sold to a rivaling firm at a price which would reflect time, capital, and resources forgone. This would create a mutual exchange as one firm will benefit through capital while another benefits from intellectual property, thus directing their assets into alternative means of production. This platform will create greater incentive to undergo an R&D project as well as construct increasingly innovative markets that would be extremely favorable for consumers.
Eliminating the risk and uncertainty within R&D would certainly lead to more R&D projects. One of the biggest concerns within the traditional approach to R&D is the concept of risk. “Risk perceptions may lead to under-investment in R&D compared to the socially optimum level.” (Annex 2) If the trading of intellectual knowledge can reduce risk than consequently more R&D projects will undergo. Because firms would avoid mistakes in their investments, competent innovations would be made to the likes of the firm as well as its user. However, in today’s industry many failures take place because of the misuse of resources and capital. We will look into this by examining Sony’s presence in e-book and flat screen markets as well as Nokia’s plunge from leader in the mobile device markets.
Sony vs. Amazon
Sony introduced the first reader with electronic ink display in early 2004, named Librie. Consumers fancied the idea of the e-book reader with a print-like display; however, it didn’t become popular because it required a computer to download and transfer the books onto the device. Furthermore, it was only intended to be sold in Japan (Wakabayashi 1). Librie then brought attention to the technology analyst Michael Gartenberg. Gartenberg was impressed by the product, but was aware of its flaw before three years prior to the release of Amazon’s Kindle. The idea of e-book reader proved to be a brilliant idea as Kindle’s first generation was sold out in five and half hours after its release in 2007, the same year when Sony stopped selling Librie (Wakabayashi 1).
Had Sony protected their product from reaching the market, the e-book’s intellectual property might have been saved for an unknown length of time. Also, had they consulted with technology analysts and tested products with potential consumers to some extent of secrecy,...

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