An Auction Model of Intellectual Property Protection: Patent Versus Copyright

Michael Waterson and Norman Ireland

Annals of Economics and Statistics, 1998, issue 49-50, 247-263

Abstract: In this paper several firms compete for the right to obtain intellectual property protection for a basic idea which has subsequent potential applications. The modelling employs an auction analogy, taking the context to be an n-player all-pay auction, with a reserve. We find that, even taking only firms' own utilities into account, welfare has no interior maximum, so that either maximal, or minimal, protection is optimal. Through examining a simple version of this game, we suggest that software is socially better protected by means of copyright rather than patent.

Date: 1998
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