Imperfect patent protection, licensing, and willingness to pay for the innovation

Carlo Capuano and Iacopo Grassi ()
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Iacopo Grassi: University of Naples Federico II

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2020, vol. 47, issue 2, No 7, 333-359

Abstract: Abstract This article analyzes the ways in which imperfect patent protection affects patent holders’ licensing decisions, firms’ willingness to pay for the innovation, and social welfare. We consider a cost-reducing innovation by either an incumbent or a (potential) entrant. According to our analysis, when patent protection is high enough, the entrant is willing to pay more compared with the incumbent, it licenses the innovation exclusively, and it acts as a non-practicing entity. In the case of low patent protection, the threat of imitation discourages licensing agreements, and consequently, the incumbent ends up investing more. Thus, the level of patent protection impacts the structure of the market, affecting R&D appropriability and social welfare.

Keywords: Patents; Licensing; wtp; npe; Welfare (search for similar items in EconPapers)
JEL-codes: D45 L12 L13 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s40812-019-00142-w

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