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The effects of non-assertion of patents provisions: R&D incentives in vertical relationships

  • Noriaki Matsushima
  • Koki Arai
  • Ikuo Ishibashi
  • Fumio Sensui

Using a simple downstream duopoly model with vertical relations and downstream R&D, we investigate the effect of non-assertion of patents (NAP) provisions. A monopoly upstream firm decides whether to employ NAP provisions. If it does so, it freely incorporates the R&D outcomes into its inputs. Incorporation improves the efficiency of the downstream firms' production. We have interpreted the introduction of NAP provisions as a source of technology spillover. Using the technologies of two downstream firms is optimal for the upstream firm if and only if the degree of technology spillover is small. In addition, if the ex ante cost difference between the downstream firms is significant, such technology spillovers erode both the profit of the efficient downstream firm and social welfare. We interpret our result in the context of an actual antitrust case related to this model.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0807.

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Date of creation: Apr 2011
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Handle: RePEc:dpr:wpaper:0807
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  1. Versaevel Bruno & Vencatachellum Désiré, 2009. "R&D Delegation in a Duopoly with Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, December.
  2. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  3. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer, vol. 15(3), pages 253-262, November.
  4. Chrysovalantou Milliou, 2006. "Endogenous Protection Of R&D Investments," Economics Working Papers we066325, Universidad Carlos III, Departamento de Economía.
  5. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2005. "Cooperative R&D with Endogenous Technology Differentiation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 461-476, 06.
  6. Kotaro Suzumura, 1990. "Cooperative and Non-cooperative R&D in Oligopoly with Spillovers," Discussion Paper Series a218, Institute of Economic Research, Hitotsubashi University.
  7. Milliou, Chrysovalantou, 2004. "Vertical integration and R&D information flow: is there a need for 'firewalls'?," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 25-43, January.
  8. Piga, Claudio & Poyago-Theotoky, Joanna, 2005. "Endogenous R&D spillovers and locational choice," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 127-139, March.
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