Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race

Chaim Fershtman and Sarit Markovich

No 5481, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: R&D is an inherently dynamic process which involves different intermediate steps that need to be developed before the completion of the final invention. Firms are not necessarily symmetric in their R&D abilities; some may have advantages in early stages of the R&D process while others may have advantages in other stages of the process. The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers' surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation. This result holds even in cases where the length of the patent is optimally calculated.

Keywords: Patent protection; R&d race; Licensing (search for similar items in EconPapers)
JEL-codes: D43 L1 O3 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-ino, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Patents, imitation and licensing in an asymmetric dynamic R&D race (2010)
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