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Strategic R&D Delays Generate Market Power

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  • Murat F. Iyigun
  • X. Maggie Chen

Abstract

We develop an economic growth model in which both the R&D resources to develop new product applications and the market structure of consumption goods manufacturing are determined endogenously. There exists uncertainty with respect to the development date of an inaugural product, although higher R&D spending shortens the expected product development stage. Once an inaugural product application is introduced, the costs of imitation decline. According to the model, the time between a patent application and the development date of an inaugural product is influenced by two factors: returns to scale in R&D and "strategic delay" in order to maintain market power. We find in particular that effective patent lengths--the interval of time between the introduction of inaugural products and the expiration of patents--decline faster when imitation costs are relatively low. We then explore the link between optimal patent lengths and market structure. Our findings suggest that, in order to minimize the strategic delay of inaugural applications, patent lengths should be longer in industries where barriers to entry are relatively high

Suggested Citation

  • Murat F. Iyigun & X. Maggie Chen, 2004. "Strategic R&D Delays Generate Market Power," Econometric Society 2004 North American Summer Meetings 213, Econometric Society.
  • Handle: RePEc:ecm:nasm04:213
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    References listed on IDEAS

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    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
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    6. Josh Lerner, 2002. "150 Years of Patent Protection," American Economic Review, American Economic Association, vol. 92(2), pages 221-225, May.
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    8. Horowitz, Andrew W & Lai, Edwin L-C, 1996. "Patent Length and the Rate of Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 785-801, November.
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    13. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
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    Keywords

    technological change; industrial organization; intellectual property; economic growth;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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