Dynamic Competition and Intellectual Property Rights in a Model of Product Development

52 Pages Posted: 25 Sep 2017 Last revised: 6 Aug 2018

See all articles by Etienne Billette de Villemeur

Etienne Billette de Villemeur

CNRS - Lille Economics & Managment - UMR 9221; Lille University

Richard R. Ruble

EM Lyon (Ecole de Management de Lyon)

Bruno P. A. Versaevel

Emlyon Business School; GATE (Groupe d'Analyse et de Théorie Economique)

Date Written: August 2, 2018

Abstract

We study innovation timing and socially optimal intellectual property rights (IPRs) when firms facing market uncertainty invest strategically in product development. If demand growth and volatility are high, attrition occurs and IPRs should ensure the cost of imitation attains a lower bound we identify. If demand growth and volatility are low then provided that entry is business-stealing, IPRs should set the cost of imitation high enough to induce preemption, and possibly winner-take-all preemption. Moreover, the welfare achieved with optimal IPRs is greater with endogenous innovation than if firm roles are predetermined, illustrating the importance of fostering dynamic competition. In extensions we show that firms benefit from open standards, that takeovers have ambiguous welfare effects and that simple licensing schemes are welfare improving.

Keywords: cost of imitation, dynamic competition, patent policy, winner-take-all preemption

JEL Classification: G31, L13, O33

Suggested Citation

Billette de Villemeur, Etienne and Billette de Villemeur, Etienne and Ruble, Richard R. and Versaevel, Bruno P. A., Dynamic Competition and Intellectual Property Rights in a Model of Product Development (August 2, 2018). Available at SSRN: https://ssrn.com/abstract=3041127 or http://dx.doi.org/10.2139/ssrn.3041127

Etienne Billette de Villemeur

CNRS - Lille Economics & Managment - UMR 9221 ( email )

Lille
France

Lille University ( email )

Lille
France

Richard R. Ruble (Contact Author)

EM Lyon (Ecole de Management de Lyon) ( email )

23 Ave Guy de Collongue
Ecully, 69134
France

Bruno P. A. Versaevel

Emlyon Business School ( email )

23, avenue Guy de Collongue
Economics, Finance, Control
Ecully, 69130
France

GATE (Groupe d'Analyse et de Théorie Economique) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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