“Direct Path” Benefits
Private and Social Returns to R&D

Pure Market Spillover
Plus Pure Knowledge Spillover

Firm 1 R&D New Knowledge Held by Firm 1 Better Products Lower Product Market Competition Costs	Firm 1 profits Customer benefit	private return spillover gap	social return
	New Knowledge Released By Firm 1 (e.g., patents, publications, other)
Other Firms’ Knowledge Better Products Lower Product Other Product Markets	Other Firms' profits Customer base	private return spillover gap	social return