Do Stronger Patents Lead to Faster Innovation? The Effect of Duplicative Search

Kaustav Das () and Nicolas Klein

No 20/03, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We analyse a model of two firms that are engaged in a patent race. Firms have to choose in continuous time between a traditional and an innovative method of pursuing the decisive breakthrough. They share a common belief about the likelihood of the innovative method being good. The unique Markov perfect equilibrium coincides with the cartel solution if and only if firms are symmetric in their abilities of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium will entail excessive duplication of efforts in the innovative method, as compared to the cartel benchmark, for any level of patent protection. We show that the expected time to a breakthrough is minimised at an interior level of patent protection, providing a possible explanation for the decrease in R&D productivity sometimes associated with stronger patent protections.

Keywords: R&D competition; Duplication; Two-armed Bandit; Learning (search for similar items in EconPapers)
JEL-codes: C73 D83 O31 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-mic, nep-ore and nep-sbm
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Citations: View citations in EconPapers (1)

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