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Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race

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  • Fershtman, Chaim
  • Markovich, Sarit

Abstract

R&D is an inherently dynamic process which involves different intermediate steps that need to be developed before the completion of the final invention. Firms are not necessarily symmetric in their R&D abilities; some may have advantages in early stages of the R&D process while others may have advantages in other stages of the process. The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers' surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation. This result holds even in cases where the length of the patent is optimally calculated.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5481.

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Date of creation: Feb 2006
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Handle: RePEc:cpr:ceprdp:5481

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Keywords: licensing; patent protection; R&D race;

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References

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  1. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
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  3. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August.
  4. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
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  8. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, 09.
  9. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  10. Doraszelski, Ulrich, 2003. " An R&D Race with Knowledge Accumulation," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 20-42, Spring.
  11. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
  12. Denicolo, Vincenzo, 1999. "The optimal life of a patent when the timing of innovation is stochastic," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 827-846, August.
  13. Harris, Christopher & Vickers, John, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 193-209, April.
  14. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
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Cited by:
  1. Slivko, Olga & Theilen, Bernd, 2011. "Innovation or Imitation? The effect of spillovers and competitive pressure on firms' R&D strategy choice," Working Papers 2072/179618, Universitat Rovira i Virgili, Department of Economics.

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