Diffusing New Technology Without Dissipating Rents

James Bessen and Alessandro Nuvolari

The diffusion of innovations is supposed to dissipate inventors’ rents. Yet in many documented cases, inventors freely shared knowledge with their competitors. Using a model and three case studies from the nineteenth century — power weaving, Bessemer steel, and Cornish steam engines — this article explores why sharing did not eliminate inventors’ incentives.Each new technology coexisted with an alternative for many years. This allowed inventors to earn rents while sharing knowledge and realizing substantial productivity gains.  Once the new technology came to dominate the market and drive out the old, the knowledge sharing largely stopped.  The technology diffusion literature suggests that such circumstances are common during the early stages of a new technology when patenting might actually be counterproductive.