Although invention is often an ‘inspirational’ act that can be undertaken with limited facilities, innovation is very resource-intensive. The substantial capital outlays required to pursue development work, coupled with a high risk of failure to come up with a marketable product, tend to favour the larger firm, which is able to finance R & D out of current profits and also to spread risks by undertaking a number of research projects. Thus, it might be argued that MONOPOLY or OLIGOPOLY market structures tend to be more conducive to R & D since they are associated with the generation of ABOVE-NORMAL PROFITS. However, although a monopolist has the resources to fund R & D, it may not have the incentive to do so, since its present market position is secure. By contrast, oligopolists have both the resources and the incentive to undertake R & D, since the ability to develop new processes that lower supply costs and introduce innovative NEW PRODUCTS is often a critical factor in establishing COMPETITIVE ADVANTAGE over rival suppliers.
R & D can also be an important factor in promoting a higher rate of ECONOMIC GROWTH, and in order to foster TECHNOLOGICAL PROGRESSIVENESS, many countries grant temporary PATENT rights to reward inventors. See PRODUCT PERFORMANCE, PRODUCT LIFE CYCLE.