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Endogenous licensing in cumulative innovation

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  • Kou Zonglai
  • Zhang Jian

Abstract

This paper analyzes the endogeneity of licensing arrangements in cost-reducing cumulative innovation. There exists the following results. First, for the first-generation patentee, ex post licensing matters for rent extraction while ex ante licensing matters for efficiency. Second, if the second-generation innovator does not exit, then the firms' profits as well as social welfare are all irrelevant to whether ex ante licensing is allowed. Third, costly litigation can occur on the equilibrium path and its occurrence is also irrelevant to ex ante licensing. Interestingly, the conditional probability of the first-generation patentee winning litigation first decreases and then increases in patent breadth. Fourth, optimal patent breadth depends on the tradeoff between litigation costs and antitrust effect.
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Suggested Citation

  • Kou Zonglai & Zhang Jian, 2007. "Endogenous licensing in cumulative innovation," Psychometrika, Springer;The Psychometric Society, vol. 2(3), pages 424-457, July.
    • Handle: RePEc:spr:psycho:v:2:y:2007:i:3:p:424-457
    DOI: 10.1007/s11459-007-0022-0
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    More about this item

    Keywords

    cumulative innovation; patent breadth; ex post licensing; ex ante licensing; perfect bayesian equilibrium; D23; K41; O34; 累积创新; 专利保护宽度; 事后许可证; 事前许可证; 精炼贝叶斯均;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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