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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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number
0041.
Find related papers by JEL classification: K3 - Law and Economics - - Other Substantive Areas of Law L5 - Industrial Organization - - Regulation and Industrial Policy O3 - Economic Development, Technological Change, and Growth - - Technological Change
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