Dynamic Impact of Open Innovation Systems – Comparison with Patent-Licensing

A model of open innovation among competing firms is developed. Innovation is modelled as a dynamic sequential process where existing technologies advance through research. New technologies are incorporated into next generation of competing products. This model is implemented in an evolutionary setup, where the static and dynamic consequences of the open innovation paradigm are compared with patent-licensing. Both are found to be equivalent in technology outcomes, but open innovation provides strategic advantages to firms, especially when market size is limited. Furthermore, we identify technology and market level characteristics which impact the evolution of firms and innovation outcomes