The role of the supply chain for innovation The example of Photovoltaic Solar Cells

We examine incentives for innovation from learning-by-doing for photovoltaic cell producers. Industry structure and insights from interviews are reflected in a two-period and two-stage model. Equipment suppliers decide on the price level for innovative manufacturing devices. Cell producers invest in new production lines and chose the share of innovative production equipment. Policy instruments that increase confidence in future market size increase innovation, while unexpected current demand reduces innovation. Competing innovative manufacturing equipment suppliers can explore and select multiple innovative ideas, but fail to appropriate the full innovation benefits. This can be compensated with public support for innovation in the production process. ∗[email protected](Dept. of Economics, Sidgwick Avenue, Cambridge CB3 9DE, UK), [email protected], [email protected], [email protected]. Research support from the UK research council, project TSEC, is also gratefully acknowledged.