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The effects of non-assertion of patents provisions: R&D incentives in vertical relationships

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  • Noriaki Matsushima
  • Koki Arai
  • Ikuo Ishibashi
  • Fumio Sensui

Abstract

Using a simple downstream duopoly model with vertical relations and downstream R&D, we investigate the effect of non-assertion of patents (NAP) provisions. A monopoly upstream firm decides whether to employ NAP provisions. If it does so, it freely incorporates the R&D outcomes into its inputs. Incorporation improves the efficiency of the downstream firms' production. We have interpreted the introduction of NAP provisions as a source of technology spillover. Using the technologies of two downstream firms is optimal for the upstream firm if and only if the degree of technology spillover is small. In addition, if the ex ante cost difference between the downstream firms is significant, such technology spillovers erode both the profit of the efficient downstream firm and social welfare. We interpret our result in the context of an actual antitrust case related to this model.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0807.

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Date of creation: Apr 2011
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Handle: RePEc:dpr:wpaper:0807

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  1. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Piga, Claudio & Poyago-Theotoky, Joanna, 2005. "Endogenous R&D spillovers and locational choice," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 127-139, March.
  3. Désiré Vencatachellum & Bruno Versaevel, 2005. "R&D Delegation in a Duopoly with Spillovers," Cahiers de recherche 05-01, HEC Montréal, Institut d'économie appliquée.
  4. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2004. "Cooperative R&D with Endogenous Technology Differentiation," Industrial Organization 0401009, EconWPA.
  5. Milliou, Chrysovalantou, 2004. "Vertical integration and R&D information flow: is there a need for 'firewalls'?," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 25-43, January.
  6. Chrysovalantou Milliou, 2009. "Endogenous protection of R&D investments," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 184-205, February.
  7. Kotaro Suzumura, 1990. "Cooperative and Non-cooperative R&D in Oligopoly with Spillovers," Discussion Paper Series a218, Institute of Economic Research, Hitotsubashi University.
  8. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer, vol. 15(3), pages 253-262, November.
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