Effects of the Anticommons on R&D: The Case of University Corporation in Japan

Patentability of basic research together with complementarity between basic research and commercialization development leads to the problem called "anti-commons" where assigning exclusive rights of a resource to more than one entity reduces usage of the resource. Transition from (not-for-profit) National University to (profit-seeking) University Corporation in Japan may actualize a nightmare of the anti-commons in product innovations of some fields such as biotechnology. This paper, using a two-stage patent race model, shows that we need more expenditure on basic research to compensate for negative effect of the anti-commons on R´&D: as a consequence of the transition to University Corporation, (1) interim expected profits of firms evaluated at the beginning of the commercialization stage become less than half, (2) ex ante expected profits of firms evaluated at the beginning of the basic research stage decrease if total expenditures on basic research under National University is less than twice that under University Corporation, and (3) for social welfare to increase, total expenditure on basic research must increase in the case where consumer surplus is high relative to total revenue from patents and there is a small number of firms competing in the development stage.