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The Effects of Non-Assertion of Patents Provisions: R&D Incentives in Vertical Relationships

20 Pages Posted: 20 Apr 2011  

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Koki Arai

JFTC & CPRC (Japan Fair Trade Commission)

Ikuo Ishibashi

affiliation not provided to SSRN

Fumio Sensui

Kobe University

Date Written: April 19, 2011

Abstract

Using a simple downstream duopoly model with vertical relations and downstream R&D, we investigate the effect of non-assertion of patents (NAP) provisions. A monopoly upstream firm decides whether to employ NAP provisions. If it does so, it freely incorporates the R&D outcomes into its inputs. Incorporation improves the efficiency of the downstream firms' production. We have interpreted the introduction of NAP provisions as a source of technology spillover. Using the technologies of two downstream firms is optimal for the upstream firm if and only if the degree of technology spillover is small. In addition, if the ex ante cost difference between the downstream firms is significant, such technology spillovers erode both the profit of the efficient downstream firm and social welfare. We interpret our result in the context of an actual antitrust case related to this model.

Keywords: vertical relations, investment, technology spillover, NAP provisions

JEL Classification: K43,L11

Suggested Citation

Matsushima, Noriaki and Arai, Koki and Ishibashi, Ikuo and Sensui, Fumio, The Effects of Non-Assertion of Patents Provisions: R&D Incentives in Vertical Relationships (April 19, 2011). ISER Discussion Paper No. 807. Available at SSRN: https://ssrn.com/abstract=1814587 or http://dx.doi.org/10.2139/ssrn.1814587

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Koki Arai

JFTC & CPRC (Japan Fair Trade Commission) ( email )

Tokyo
Japan

Ikuo Ishibashi

affiliation not provided to SSRN ( email )

Fumio Sensui

Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

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