DO STRONGER PATENTS LEAD TO FASTER INNOVATION? THE EFFECT OF CLUSTERED SEARCH

Kaustav Das and Nicolas Klein

International Economic Review, 2024, vol. 65, issue 2, 915-954

Abstract: We analyze a patent race between two firms choosing between an established and an innovative method. The unique Markov‐perfect equilibrium coincides with the cartel solution if and only if firms have the same ability of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium efforts are clustered too much in the innovative method, as compared to the cartel benchmark. The expected time to a breakthrough is minimized at an interior patent strength. Thus, a decrease in R&D productivity can go hand‐in‐hand with a concentration of research efforts in riskier areas and stronger patent protections.

Date: 2024
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