EconPapers    
Economics at your fingertips  
 

Sequential Innovation, Naked Exclusion, and Upfront Lump-Sum Payments

Jay Choi () and Christodoulos Stefanadis ()

No 6412, CESifo Working Paper Series from CESifo Group Munich

Abstract: We present a potentially benign naked exclusion mechanism that can be applied to sequential innovation; a non-patentable original innovation by the incumbent supplier fosters derivative innovation by rivals. In the absence of an appropriate legal framework, the original innovator’s equilibrium exclusivity contracts block subsequent efficient entry even if there is (leader-follower) competition in the contracting phase. However, the legal framework may maximize social welfare by imposing a ban on upfront lumps-sum payments in exclusivity contracts (by all suppliers) combined with an outright ban on exclusivity contracts by the derivative innovator. The former ban precludes the exclusion of socially beneficial derivative innovation by causing the incumbent supplier to resort to accommodation, rather than to pure exclusion, strategies. The latter ban complements the former by preventing inefficient or excessive derivative innovation.

Keywords: exclusivity; entry; fixed cost; lump-sum payment; sequential innovation (search for similar items in EconPapers)
JEL-codes: L42 D43 D45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ino and nep-mic
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.cesifo-group.de/DocDL/cesifo1_wp6412.pdf (application/pdf)

Related works:
Journal Article: Sequential innovation, naked exclusion, and upfront lump-sum payments (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6412

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2019-04-11
Handle: RePEc:ces:ceswps:_6412