Discussion

The most important finding of Gambardella, Raasch, and von Hippel (2016) is that both producers' profits and social welfare are generally increased if producers invest less in capabilities and innovations that substitute for what free innovators find it viable to do, and invest more in capabilities and innovations that complement free innovation.

For example, in the video game industry, producers should focus their own development efforts on developing game "engines”—a very complex type of software program that has been, at least so far, seldom viable for free innovator developers. In contrast, they should leave the development of simpler and cheaper game "mods” to their gamer customers. Similarly, medical equipment producers may want to leave the pioneering of some new types of medical devices to free innovator patients. (As we will see in chapter 10, free innovating patients are entirely within their legal rights to create, use, and freely share designs for novel medical devices without governmental approvals.) The producers would then focus their R&D investments on the complementary tasks of making the patients' designs better and more reliable through product engineering, and on getting the devices through costly governmental approval processes.

Recall that the modeling also found that, from the perspective of social welfare, producers tend to switch "too late” from a focus on internal R&D only to a division of labor with free innovators as the proportion of free innovators in their markets increases. This is because producers' profit calculations do not take the welfare benefits arising from free innovators' tinkering surplus into account. Novel policy measures may be needed to address this problem. Indeed, some existing policies may make the problem worse and should be reassessed. Policies to subsidize producers to develop innovations that free innovators can also develop will further retard producers' transition to an appropriate division of labor with free innovators. The net effect will be to redistribute welfare from free innovators to firms, and even to lower aggregate welfare.

Again and in summary, my colleagues and I find that both producers and society can benefit from a conscious, intelligently implemented division of innovation labor between innovators acting within the free innovation paradigm and firms acting within the producer innovation paradigm. In the next chapter, I will explore some practical steps in this direction.

 
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