Appropriating t he Returns from Industrial Research and Development To HAVE the incentive to undertake research and development, a firm must be able to appropriate returns sufficient to make the investment worthwhile. The benefits consumers derive from an innovation, however, are increased if competitors can imitate and improve on the innovation to ensure its availability on favorable terms. Patent law seeks to resolve this tension between incentives for innovation and widespread diffusion of benefits. A patent confers, in theory, perfect appropriability (monopoly of the invention) for a limited time in return for a public We are grateful for the support of the National Science Foundation and especially to Rolf Piekarz of the NSF's Division of Policy Research and Analysis. We also wish to thank the 650 respondents to our survey and the R&D executives who helped us pretest it-especially Ralph Gomory,

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Recent literature on the law and economics of antitrust has devoted increasing attention to the issue of "predatory pricing"-a dominant firm's use of price to restrict competition by driving out existing rivals or excluding potential ones. A number of scholars-including Areeda and Turner, Baumol, Bork, Posner, Scherer, and Williamson-have contributed to this discussion,' and each has taken a different * A large number of people have stimulated our thinking on this subject. We would like to acknowledge, in particular, the helpful comments Bruce Ackerman, Richard Levin, Richard Schmalensee, Jeff Strnad, and Oliver Williamson made on earlier versions of this paper and the helpful research assistance of Jeff Strnad. These people, of course, bear no responsibility for any faults that may remain.

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