Working Paper: CEPR ID: DP5481
Authors: Chaim Fershtman; Sarit Markovich
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: licensing; patent protection; R&D race
JEL Codes: D43; L1; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak patent protection regime (O34) | higher consumer surplus (D11) |
| weak patent protection regime (O34) | higher firm value (G32) |
| ability to imitate intermediate technologies (O33) | enhanced speed of innovation (O36) |
| asymmetric abilities (C72) | enhanced returns when imitation is permitted (L15) |
| weak patent protection regime (O34) | cooperative dynamic among firms (L14) |
| patent regime (O34) | investment strategies of firms (L21) |