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On the Division of Profit in Sequential Innovation

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  • Jerry R. Green
  • Suzanne Scotchmer

Abstract

In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator's patent protection and/or by permitting cooperative agreements between initial innovators and later innovators. We investigate the policy that is most effective at ensuring the first innovator earns a large share of profit from the second-generation products it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 26 (1995)
Issue (Month): 1 (Spring)
Pages: 20-33

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Handle: RePEc:rje:randje:v:26:y:1995:i:spring:p:20-33

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  1. Models of Innovation 2: Sequential Innovation
    by afinetheorem in A Fine Theorem on 2012-05-19 09:30:12
  2. Models of Innovation 2: Sequential Innovation
    by afinetheorem in A Fine Theorem on 2012-05-19 09:30:12
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