Working Paper: CEPR ID: DP7511
Authors: Emeric Henry; Carlos J. Ponce
Abstract: We study the problem of an inventor who brings to the market an innovation that can be legally copied. Imitators may 'enter' the market by copying the innovation at a cost or by buying from the inventor the knowledge necessary to reproduce and use the invention. The possibility of contracting affects the need for patent protection. Our results reveal that: (i) Imitators wait to enter the market and the inventor becomes a temporary monopolist; (ii) The inventor offers contracts which allow resale of the knowledge acquired by the imitators; (iii) As the pool of potential imitators grows large, the inventor may become a permanent monopolist.
Keywords: contracting; knowledge; trading; patents; war of attrition
JEL Codes: C73; D23; L24; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trading knowledge (G53) | Imitators delay entry (L15) |
| Imitators delay entry (L15) | Inventor achieves temporary monopolistic status (D42) |
| Increasing pool of imitators (O36) | Inventor's profits approach permanent monopoly (D42) |
| Imitation cost increases (F12) | Expected length of monopoly time increases (D42) |