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Waiting to Copy: On the Dynamics of the Market for Technology

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  • Emeric Henry
  • Carlos J. Ponce

Abstract

We examine the appropriability problem of an inventor who brings to the market a successful innovation that can be legally copied. We study this problem in a dynamic model in which imitators can “enter” the market either by copying the invention at a cost or by buying knowledge (a license) from the inventor. The first imitator to enter the market can then resell his acquired knowledge to the remaining imitators. This dynamic interaction in the licensing market dramatically affects the conventional wisdom on the need for intellectual property rights. Our main result reveals that, in equilibrium, imitators delay their entry into the market and thus the inventor retains monopoly rents for some time. Second, we show that the innovator strictly prefers to offer non-exclusive rather than exclusive licenses which would forbid reselling by the imitators. Last, we prove that when the innovator faces a large number of imitators, her equilibrium reward converges to monopoly profits.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000030.

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Date of creation: 14 Nov 2008
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Handle: RePEc:cla:levarc:814577000000000030

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  1. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  2. Boldrin, Michele & Levine, David, 2002. "The Case Against Intellectual Property," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3273, C.E.P.R. Discussion Papers.
  3. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
  4. Michele Boldrin & David K Levine, 2005. "Intellectual Property and the Efficient Allocation of Surplus from Creation," Levine's Working Paper Archive 618897000000000925, David K. Levine.
  5. Boldrin, Michele & Levine, David K., 2008. "Perfectly competitive innovation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(3), pages 435-453, April.
  6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  7. Stephen M Maurer & Suzanne Scotchmer, 2003. "The Independent Invention Defense in Intellectual Property," Levine's Working Paper Archive 618897000000000544, David K. Levine.
  8. Lewis Makowski & Joseph Ostroy, 2010. "Appropriation and Efficiency: A Revision of the First Theorem of Welfare Economics," Levine's Working Paper Archive 1386, David K. Levine.
  9. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  10. Michele Boldrin & David K. Levine, 2004. "IER Lawrence Klein Lecture: the case against intellectual monopoly," Staff Report, Federal Reserve Bank of Minneapolis 339, Federal Reserve Bank of Minneapolis.
  11. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, American Economic Association, vol. 74(5), pages 931-41, December.
  12. Benoit, Jean-Pierre, 1985. "Innovation and Imitation in a Duopoly," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(1), pages 99-106, January.
  13. Anton, James J & Yao, Dennis A, 1994. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 190-209, March.
  14. Ashish Arora & Andrea Fosfuri & Alfonso Gambardella, 2004. "Markets for Technology: The Economics of Innovation and Corporate Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511819, December.
  15. Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(3), pages 513-31, July.
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