Online Appendix for 'An Economic Model of Patent Exhaustion'

Abstract

In this online appendix, we discuss extensions to our model of patent exhaustion. Section A.1 examines how the patent owner's incentive to invest in product quality (a proxy for the overall ex ante innovation) in a regime of presumptive exhaustion compares to a regime of absolute exhaustion. In Section A.2, we allow for heterogeneous intermediaries that purchase and license on behalf of the buyers, and also assume that the patent owner incurs a transaction cost when licensing to the manufacturer. Section A.3 considers information asymmetry in assessing the buyer's demand, and Section A.4 allows for unpatented imperfect substitutes for the patented component. In Section A.5, we assume that there is a second-hand market in which current buyers can buy used goods (with depreciated quality), which have been previously purchased by other buyers from the patent owner at a discounted price. Section A.6 considers multi-component products.

Keywords: Intellectual Property, Patent Exhaustion, First Sale Doctrine, Patent Licensing

JEL Classification: F10, O34, F100, O310