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Strategic R&D Delays Generate Market Power

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Author Info
Murat F. Iyigun
X. Maggie Chen

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Abstract

We develop an economic growth model in which both the R&D resources to develop new product applications and the market structure of consumption goods manufacturing are determined endogenously. There exists uncertainty with respect to the development date of an inaugural product, although higher R&D spending shortens the expected product development stage. Once an inaugural product application is introduced, the costs of imitation decline. According to the model, the time between a patent application and the development date of an inaugural product is influenced by two factors: returns to scale in R&D and "strategic delay" in order to maintain market power. We find in particular that effective patent lengths--the interval of time between the introduction of inaugural products and the expiration of patents--decline faster when imitation costs are relatively low. We then explore the link between optimal patent lengths and market structure. Our findings suggest that, in order to minimize the strategic delay of inaugural applications, patent lengths should be longer in industries where barriers to entry are relatively high

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Publisher Info
Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 213.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:213

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Related research
Keywords: technological change; industrial organization; intellectual property; economic growth;

Find related papers by JEL classification:
I20 - Health, Education, and Welfare - - Education - - - General
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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  1. Glenn Ellison & Sara Fisher Ellison, 2007. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," NBER Working Papers 13069, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Josh Lerner, 2000. "150 Years of Patent Protection," NBER Working Papers 7478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Horowitz, Andrew W & Lai, Edwin L-C, 1996. "Patent Length and the Rate of Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 785-801, November.
  4. Weeds, Helen, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 729-47, July.
    Other versions:
  5. Jean Imbs & Romain Wacziarg, 2003. "Stages of Diversification," American Economic Review, American Economic Association, vol. 93(1), pages 63-86, March. [Downloadable!]
    Other versions:
  6. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 557-86, May. [Downloadable!] (restricted)
    Other versions:
  7. Aghion, Philippe & Howitt, Peter, 1996. " Research and Development in the Growth Process," Journal of Economic Growth, Springer, vol. 1(1), pages 49-73, March.
  8. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring. [Downloadable!] (restricted)
  9. Carmen Matutes & Pierre Regibeau & Katharine Rockett, 1996. "Optimal Patent Design and the Diffusion of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 60-83, Spring. [Downloadable!] (restricted)
  10. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  12. Goel, Rajeev K, 1996. "Uncertainty, Patent Length and Firm R&D," Australian Economic Papers, Blackwell Publishing, vol. 35(66), pages 74-80, June.
  13. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June. [Downloadable!] (restricted)
  14. Kamien, Morton I & Schwartz, Nancy L, 1974. "Patent Life and R & D Rivalry," American Economic Review, American Economic Association, vol. 64(1), pages 183-87, March. [Downloadable!] (restricted)
  15. Emmanuel Dechenaux & Brent Goldfarb & Scott A. Shane & Marie C. Thursby, 2003. "Appropriability and the timing of innovation: Evidence from MIT inventions," NBER Working Papers 9735, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Peretto, Pietro F., 1999. "Firm size, rivalry and the extent of the market in endogenous technological change," European Economic Review, Elsevier, vol. 43(9), pages 1747-1773, October. [Downloadable!] (restricted)
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