Sequential innovations with unobservable follow-on investments
AbstractWe 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 InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0041.
Length: 22 pages
Date of creation: May 2007
Date of revision:
sequential innovation; patents; licensing; intellectual property;
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; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-18 (All new papers)
- NEP-COM-2007-08-18 (Industrial Competition)
- NEP-INO-2007-08-18 (Innovation)
- NEP-IPR-2007-08-18 (Intellectual Property Rights)
- NEP-LAW-2007-08-18 (Law & Economics)
- NEP-MIC-2007-08-18 (Microeconomics)
- NEP-TID-2007-08-18 (Technology & Industrial Dynamics)
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