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Sequential innovations with unobservable follow-on investments

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  • Stefano Comino

    ()
    (Università di Trento,)

  • Fabio Manenti

    ()
    (Università di Padova,)

  • Antonio Nicolò

    ()
    (Università di Padova,)

Abstract

We consider a cumulative innovation process in which a follow-on innovator invests in R&D activities that influence both the expected commercial value as well as the novelty of its innovation. When the second innovator investments are not servable,licensing of the first innovation never occurs efficiently, and, at the equilibrium, the follow-on innovator either underinvests or overinvests. We show that a large patent breadth may be harmful for the first innovator too, and therefore Pareto-dominated;as long as the undervinvestment problem becomes more pronounced, the value generated by the follow-on innovator reduces, and so do the licensing revenues of the first inventor.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0041.

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Length: 22 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:pad:wpaper:0041

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Keywords: sequential innovation; patents; licensing; intellectual property;

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References

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  1. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
  2. Siebert, Ralph & von Graevenitz, Georg, 2006. "Jostling for Advantage: Licensing and Entry into Patent Portfolio Races," CEPR Discussion Papers 5753, C.E.P.R. Discussion Papers.
  3. 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.
  4. Nicholas Economides, 1997. "Network Externalities, Complementarities, and Invitations to Enter," Industrial Organization 9701004, EconWPA.
  5. Haller, H. & Chou, T., 1995. "The Division of Profit in Sequential Innovation Reconsidered," Papers 9564, Tilburg - Center for Economic Research.
  6. Stuart Graham & David Mowrey, 2004. "Submarines in software? continuations in US software patenting in the 1980s and 1990s," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(5), pages 443-456.
  7. Adam B. Jaffe & Josh Lerner & Scott Stern, 2002. "Innovation Policy and the Economy, Volume 2," NBER Books, National Bureau of Economic Research, Inc, number jaff02-1, October.
  8. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," Law and Economics 0201001, EconWPA.
  9. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
  10. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 611-635.
  11. Chou, T. & Haller, H., 1995. "The Division of Profit in Sequential Innovation Reconsidered," Discussion Paper 1995-64, Tilburg University, Center for Economic Research.
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Cited by:
  1. Katharine Rockett, 2009. "Property Rights and Invention," Economics Discussion Papers 663, University of Essex, Department of Economics.

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