Innovation Analysis and Game Theory: A Review

Article excerpt

In this paper we review game theory and innovation related papers published in the period of 1985-2010. We divide our review into three levels of innovation games: 1) intra-organizational games, which are played within the firm and main players are an innovator, a project manager and/or resource administrator; 2) inter-organizational games, where main players are a firm and its competitors, partners and customers; 3) meta-organizational games, where main players are a social planner and an innovative entrepreneur. Compared with the previous periods, one can observe a significant increase in the number of papers which use game theory models to analyze the innovation processes. Moreover, there is a tendency to move from abstract and formal models towards practically applicable and empirically tested studies.

Keywords: innovation; R&D; game theory; competition; licensing; patents

Game theory, which can be described as a mathematical modeling of strategic interaction among independent agents, recently become one of the most powerful analytical tools in economics, especially in microeconomics and industrial organization. In particular game theory, among other applications, offers a way to formulate predictions, delivers prescriptions and recommendations for decision makers, helps to develop and implement efficient strategies.

The purpose of this paper is to put together the main contributions of applied game theory over the last 25 years to a better understanding of innovation process. We believe there is a strong need for such a review at least for two reasons. First, the previous reviews on game-theoretic analysis of innovation, namely Beath, Katsoulacos, and Ulph (1989) and Reinganum (1984), were published more than 20 years ago. Second, the number of publications directly related to game-theoretic analysis of innovation has significantly increased in the last decades.

In this paper we attempted to identify the main trends of game theory application to innovation analysis. We tried to prove a concerted framework within which different approaches and models coherently demonstrate the mainstream in the current innovation studies based on game theory principles and methods. Although our survey is mostly concentrated on the relevant literature of the last two decades, we consider necessary to cite some authors, whose works published earlier created a base for the subsequent research.

This paper surveys works on game theory and innovation which were published in the period of 1985-2010. For this survey, we researched fulltext databases, primarily EBSCO. We focused on EBSCO since this comprehensive and multidisciplinary database is a great searching tool for such a poly-disciplinary topic as innovation. Moreover, EBSCO has more than 7,100 full-text periodicals, abstracts from more than 11,200 journals and nearly 12,000 publications including monographs, reports and conference proceedings; this database covers a wider spectrum of publications than any other database.

The papers on theoretic-game analysis published in the period of 1970-1980s were reviewed in (Beath et al., 1989; Reinganum, 1984). These reviews demonstrate that there were just a few dozens of publications directly related to gametheoretic analysis of innovation published before 1985. As our analysis shows, the number of such publications has exponentially increased for the last 25 years. According to the EBSCO research databases, there were only six papers referred to both game theory and innovation and published in 1960s, 20 in 1970s, 10 in 1980s, 29 in 1990s, and 105 in 2000s.

However, there is still a very narrow overlapping area of game theory and innovation analysis. For example, EBSCO registered only 170 papers containing the words relevant to 'game theory' and 'innovation' and published in the period of 1962-2009 and 71 papers containing the words relevant to 'game theory' and 'R&D'.

To get more relevant works, we looked for papers with the words 'game theory' and 'innovations' in their title, abstract, or keyword section and got only 55 papers registered in the EBSCO for 'game theory' and 'innovation'/'R&D' indexes, while there are 21,850 for 'game theory', 665,581 for 'innovation', and 82,191 for 'R&D'. …