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Firms racing to innovate often make interim breakthroughs that
speed up, but are not necessary for, the final innovation. When
such a breakthrough is privately acquired, a firm can disclose it
by filing a patent, or conceal it. We study how the race structure
and the intellectual property system shape this trade-off. In
our dynamic model, firms allocate resources between developing
with an existing technology and researching a faster one. We show
that firms strategically conceal their breakthroughs when the prize
for winning is large and the prior-use defense is strong, impeding
knowledge spillovers and slowing the pace of innovation.
