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When Is Intellectual Property Needed As A Carrot For Innovators?


  • Christoph Engel


Policymakers all over the world claim that there can be no innovation without protection. For more than a century, critics have objected that the case for intellectual property is far from clear. This article uses a game theoretic model to organize the debate. It is possible to model innovation as a prisoner's dilemma between potential innovators and to interpret intellectual property as a tool for making cooperation the equilibrium. However, this model rests on assumptions about costs and benefits that are unlikely to hold, or have even been shown to be wrong, in many empirically relevant situations. Moreover, even if the problem is indeed a prisoner's dilemma, in many situations, intellectual property is an inappropriate solution. It sets incentives to race to be the first, or the last, to innovate, as the case may be. In equilibrium, the firms would need to randomize between investment and noninvestment, which is unlikely to work out in practice. Frequently, firms would need to invent cooperatively, which proves difficult in larger industries.

Suggested Citation

  • Christoph Engel, 2011. "When Is Intellectual Property Needed As A Carrot For Innovators?," Journal of Competition Law and Economics, Oxford University Press, vol. 7(2), pages 277-299.
  • Handle: RePEc:oup:jcomle:v:7:y:2011:i:2:p:277-299.

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law


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