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A dynamic model of patent portfolio races

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  • Denicolò, Vincenzo
  • Zanchettin, Piercarlo
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    Abstract

    We propose a dynamic model of a patent portfolio race in an industry in which innovation is incremental. Two firms compete in prices and in research. We study the Markov perfect (closed-loop) equilibrium of the resulting differential game, identifying a steady state in which firms compete neck and neck. In this equilibrium, innovation rates are inefficiently high from the firms’ viewpoint. The firms are caught in a prisoners’ dilemma and so have an incentive not to enforce their patents aggressively in order to coordinate on a more “cooperative” equilibrium.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 117 (2012)
    Issue (Month): 3 ()
    Pages: 924-927

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    Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:924-927

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: Patent portfolios; Incremental innovation; Cross-licensing; Differential game;

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    References

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    1. Noel, Michael D. & Schankerman, Mark, 2006. "Strategic Patenting and Software Innovation," CEPR Discussion Papers 5701, C.E.P.R. Discussion Papers.
    2. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
    3. Wesley M. Cohen & John P. Walsh, 2008. "Real Impediments to Academic Biomedical Research," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 1-30 National Bureau of Economic Research, Inc.
    4. Michael Noel & Mark Schankerman, 2006. "Strategic Patenting and Software Innovation," STICERD - Economics of Industry Papers 43, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Ilya Segal & Michael Whinston, 2005. "Antitrust in Innovative Industries," NBER Working Papers 11525, National Bureau of Economic Research, Inc.
    6. Michael Noel & Mark Schankerman, 2006. "Strategic Patenting and Software Innovation," CEP Discussion Papers dp0740, Centre for Economic Performance, LSE.
    7. Siebert, Ralph & von Graevenitz, Georg, 2010. "Jostling for advantage or not: Choosing between patent portfolio races and ex ante licensing," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 225-245, February.
    8. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
    9. Serrano, Roberto & Zapater, Inigo, 1998. "The Three-Legged Race: Cooperating to Compete," Games and Economic Behavior, Elsevier, vol. 22(2), pages 343-363, February.
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    Cited by:
    1. Jay Pil Choi & Heiko Gerlach, 2013. "A Theory of Patent Portfolios," CESifo Working Paper Series 4405, CESifo Group Munich.

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