The returns to an innovation often go to whoever controls the manufacturing, distribution or service assets it needs, rather than to the inventor.
Teece's 1986 paper explains why inventors so often lose. Where intellectual property is weak and the complementary assets are specialised and held by others, the innovator must either acquire them, which is slow and expensive, or contract for them, which transfers the margin. The question of who profits is settled by the asset position, not by who had the idea.
In practice
- A startup with the better technology is acquired cheaply because only three firms can manufacture it.
- An author's returns are set by who controls distribution, and the manuscript is the same either way.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money