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

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

Abstract

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.

Suggested Citation

  • Noriaki Matsushima & Koki Arai & Ikuo Ishibashi & Fumio Sensui, 2011. "The effects of non-assertion of patents provisions: R&D incentives in vertical relationships," ISER Discussion Paper 0807, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0807
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    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2011/DP0807.pdf
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    References listed on IDEAS

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    1. 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 1133-1137, December.
    2. 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.
    3. 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.
    4. Kotaro Suzumura, 1990. "Cooperative and Non-cooperative R&D in Oligopoly with Spillovers," Discussion Paper Series a218, Institute of Economic Research, Hitotsubashi University.
    5. Milliou, Chrysovalantou, 2006. "Endogenous protection of R and D investments," UC3M Working papers. Economics we066325, Universidad Carlos III de Madrid. Departamento de Economía.
    6. 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, June.
    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. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(3), pages 253-262, November.
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